- The purchasing managers survey indicates that the services sector grew at the fastest rate for 24 years in May as it benefitted from the easing of restrictions. The services PMI improved to 62.9 in May from 61.0 in April and 56.3 in March
- The May reading was revised up appreciably from the earlier ‘flash’ reading of 61.8
- Improved services activity in May was led by the reopening of customer-facing parts of the economy after winter lockdowns. There was also robust business services activity.
- Other elements of the survey were largely improved in May and at – or near – long-term highs, boding well for future services activity. This included new business, backlogs of work and confidence.
- A robust employment reading added to recent upbeat news on the UK labour market
- One concern for services companies, and for increasing inflation worries, was that input prices rose at the fastest rate since July 2008. This led to prices charged rising the most in the series’ history
- The composite output index for manufacturing and services rose to a record 62.7 in May from 60.7 in April and 56.4 in March (the series started in January 1998)
- Even allowing for the fact that the purchasing managers’ surveys can overstate movements in the economy at times of rapid change, the elevated levels of the May PMI’s are particularly impressive. They support belief that the UK economy is very much on course for a strong rebound in the second quarter.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“Services activity picked up further in May – after a marked improvement in April – to grow at the fastest rate for 24 years. Markit reported the gain in services output was driven by resurgent business and consumer spending in response to looser pandemic restrictions.
“The services PMI rose to 62.9 in May – a level revised up appreciably from an earlier ‘flash’ reading of 61.8. May’s level was up from 61.0 in April, 56.3 in March, 49.5 in February and an eight-month low of 39.5 in January.
“New business in the services sector grew at the fastest rate for nearly seven-and-a-half years. This was due to improved domestic demand as foreign orders edged down from April’s level. Meanwhile, backlogs of work rose at the fastest rate since July 2014, employment rose at the fastest rate since March 2015, and confidence remained near March’s 14-year high.
“Prices charged by services companies rose at the fastest rate since the series began in 1996. This was the consequence of strong demand and input prices rising at the fastest rate since July 2008 thanks to transport surcharges, staff wages, and the pass-through of higher imported raw material costs by suppliers. Nevertheless, margins were still squeezed as input prices increased at a markedly higher rate than prices charged.”
Composite May services and manufacturing output index points to strongest growth in survey history
Howard Archer adds: “The purchasing managers’ survey for the UK manufacturing and services sectors indicated that overall activity rose appreciably in May as the economy benefited from the easing of restrictions.
“The composite output index for manufacturing and services improved to a series high – dating back to January 1998 – of 62.7 in May. This was up from 60.7 in April, 56.4 in March, 49.6 in February and an eight-month low of 41.2 in January. This took the composite output index substantially above the 50.0 level that indicates flat activity.
“The results of the surveys bode well for second quarter GDP growth even allowing for the fact that the purchasing managers' surveys can overstate developments in the economy at times of appreciable change.”