UK Service Sector Grows at Increased Rate

Kingly Brookes, May 6th, 2015

According to the latest research survey by Markit and the Chartered Institute of Purchasing and Supply, the UK is the second largest exporter of services in the world behind the U.S. The service sector is growing at its fastest rate for six years, and for this to continue it is imperative that Britain remains competitive and maintains its reputation as an attractive place to do business.

Business and financial services and hotels and restaurants contributed most to the growth. As these small businesses continue to grow into larger businesses, the need for financial services increases. The backing of a financial services firm that understands the requirements of the service sector is an indispensable partner for any expanding company.

Service industries account for about 78% of Gross Domestic Product (GDP) with the financial services industry being of particular importance because London is home to many of the world’s largest financial institutions, as well as a number of smaller financial companies. A recent survey of 700 firms showed a growth in new business for the service sector for the 8th successive month, which also provides a boost for the rest of the economy. This marked increase in activity is a result of a wider economic recovery and improved confidence.

Higher employment and falling prices are supporting the growth, stimulating higher consumer spending helped by more favourable tax changes, creating the potential for further growth throughout the rest of this year. Business expectations edged up to a three-month high with nearly half of companies forecasting a rise in activity from present levels in twelve months’ time.

New business orders, the second highest in number during the survey’s 19 year history, evidenced through rising order books and increased foreign investment started early in the year. These figures have pushed the Purchasing Management Index (PMI) above forecast to 58.9, from 56.7 (any reading over 50 indicates growth, below 50 contraction) in February, a seven month high that reversed a trend of slower growth in the last quarter of 2014. This has been fuelled by lower costs and a slower increase in operating costs (now at their slowest since 2009) and follows both construction and manufacturing which bounced back in January after slowing down at the end of 2014. However, as businesses took on additional staff, some of the gains were offset by rising staff costs.

As the election looms, UK growth is twice as fast as the rest of the Eurozone, which is good news for the Chancellor, although unlikely to be reflected in GDP data until figures for the second quarter are released, and whilst there is an underlying threat of an increase in interest rates, a lack of inflationary pressure suggests this is someway off.