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5/12/2015 3:14:13 PM

Markit PMI report for March - service industry grows

According to Markit’s Services Purchasing Manager’s Index (PMI) report for March, growth accelerated in the services sector at the fastest pace since August 2014, although it remains well below the rate achieved in the autumn of 2013.

The report also shows that, as a result of service sector acceleration, firms are feeling more confident about the economic future; in March there was an increase in recruitment activity and wage rates.

Chief UK economist at Berenberg Bank, Rob Wood, said: “Despite a small dip, the UK services PMI points to strong growth.”

The Services PMI score, which is published on a monthly basis by Markit/CIPS, slipped more than economists expected, to 56.7, from 57.2 in January.

Vicky Redwood, chief UK economist at Capital Economics, described the fall as “a bit of a disappointment, but hardly a disaster”.

The March figure suggests the Eurozone economy is on course to growth by 0.3% in the first quarter, the fastest rate in seven months, with ‘bailed out’ countries, including Span and Ireland, enjoying the fastest rate of growth.

However, the PMI also found the UK economy to be growing twice as fast as the Eurozone. Following similar encouraging PMI surveys in Manufacturing and Construction earlier this week, Markit predict overall economic growth of 0.6 percent between January and the end of March. This figure is up 0.1 percent on Q4 2014. Whilst, overall, Services growth eased in February, firms recruited more workers and increased wages.

“The combination of relatively robust economic growth, the improving labour market and signs that wage growth will pick up in coming months suggests the Bank of England will come under increasing pressure to tighten policy later this year” said Chris Williamson, chief economist at Markit.

Berenberg’s Rob Wood agreed, stating: “Notwithstanding today’s headline disappointment on the PMI, the economy seems to be growing faster and tightening more than the Bank of England had factored in. For that reason, we look for the first Bank of England rate hike in February 2016 and we expect them to hike rates faster than the market expects.”

Markit reported an improvement in cost inflation following a low in January, among reports of vendors raising prices and higher wages being paid.Almost half of all companies surveyed for the Services PMI anticipate a rise in activity from present levels by this time next year as business expectations reach a three-month high.

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