By Daniel Hunter

Business activity in the UK service sector continued to increase during March. Growth was solid and the strongest since last August as incoming new work also rose at an accelerated rate. Payroll numbers increased, albeit at a fractional pace, while confidence in the outlook improved to the highest for ten months.

The headline seasonally adjusted Business Activity Index registered 52.4 in March. That was up from February’s 51.8 and the best reading for seven survey periods. Solid growth was achieved despite a number of reports that poor weather had weighed on activity.

Increased service sector output was supported by a marked rise in new business. Latest data showed growth was the steepest since May 2012, with companies commenting on an underlying strengthening of market demand. Clients were reported to be showing improved confidence and willingness to commit to new contacts. Growth in new business has now been recorded for three months in succession, and at increasingly strong rates.

UK service providers responded to rising sales levels by adding to their payroll numbers for a third month in a row during March. There were also reports that employment had increased in anticipation of further sales wins in the coming months. That said, the net rise in payroll numbers was marginal.

With capacity expanded slightly, companies were able to keep on top of workloads at their units. This was signalled by a further reduction in work outstanding during March, the sixth successive month that a fall has been registered. The rate of decline was, however, marginal and the weakest in the current sequence of depletion.

On the price front, average operating costs continued to increase. Despite easing to the lowest of the year so far, the degree of inflation remained marked with fuel, food and utility prices all reported to have risen since the previous month. There was also evidence that the recent depreciation of sterling had raised the price of imported goods.

“It seems that the service sector has finally found the ingredients, which if mixed correctly, may well result in the right recipe for sustained growth in 2013," David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said.

"Surging confidence, a boost to employment and the strongest increase in new business since May 2012 rounded off a solid month for the service sector.

“These positive figures culminated in a decent first quarter for this critical sector, but growth at the present rate remains tepid and below the long run average. However, there are signs that underlying trends are improving, even defying and limiting the effect of the bad weather on firms.

“Today’s news will no doubt be widely welcomed, but with on-going increases to costs, fierce competition and continued uncertainty overseas, there is still a long way to go before we can call this a recovery. Nevertheless, it could herald the beginning of one.”

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