With a growing confidence returning to the UK economy, companies are seeing an increase in volumes of incoming work and hiring, with employment rising at a record pace, says the latest Markit/CIPS UK Services PMI®.
The seasonally adjusted headline Business Activity Index rose to 58.7 in April, up from 57.6 in March. This marks the 16th straight month that has seen an increase in activity.
But with strength returning to the economy will it mean an increase in interest rates is in the offing?
Chris Williamson, Chief Economist at Markit, which compiles the survey said:
“The UK economic recovery shows no signs of running out of steam, and growth could even accelerate further in the second quarter.
“The upturn in service sector growth matches a similar acceleration to a near-record high for manufacturing output, while construction activity also continues to surge higher.”
He also said that this pointed to the economy growing by 0.8% in the second quarter of 2014 and that the survey points to 100,000 jobs being created every month. But he did go on to caution that “The strength of the PMI’s output and employment readings suggest that the discussion among policymakers about when interest rates will need to start rising will heat up, especially when viewed alongside recent house price gains.”
David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply commented:
“Growth and momentum in UK services remained steadily bullish in April, as activity increased at the fastest rate this year. Most encouraging of all has been the increase in job creation since last October, a reflection of positive prospects of market expansion. With business confidence rising further in April, firms seem convinced that a long-term strong trend is set to continue."
Martin Beck, senior economic adviser to the EY ITEM Club, said:
“The third set of PMI figures for April stands back to back with the other two surveys, portraying a picture of sustained strength in the UK economy. Stronger growth performance and reduced global risk seem to have underpinned a robust pickup in sentiment, which is giving firms the confidence to commit to contracts, investment and recruitment.
“Although skills shortages seem to be pushing up wage costs in some sectors, across the services sector as a whole costs seem to be well contained. This is likely to reflect the strong growth in the size of the workforce, with an expanding labour supply making it easier for firms to ramp up employment levels without causing wage inflation to spiral upwards.
“These falling cost pressures will help to ensure the continuation of a low inflation environment. While some key base effects will fade out of the inflation figures this month, pushing the headline rate a touch higher, we expect the core pressures within the economy to remain subdued. This will help to boost the real incomes of workers and underpin renewed vigour in the British consumer.
“The set of PMI figures provide an early indication that another quarter of above trend growth, falling unemployment and subdued inflation can be expected in Q2. We continue to expect GDP growth of 2.9% in 2014 as a whole.”