Service sector remains in slow lane

UK service providers signalled a modest rebound in business activity growth following the snow disruptions seen during March.

However, aside from the low point recorded last month, the latest upturn in service sector output was the softest for just over a year-and-a-half.

Subdued new business growth persisted in April, which contributed to a further slowdown in the rate of job creation. Meanwhile, survey respondents also noted that higher payroll costs continued to drive up operating expenses and place a squeeze on margins.

At 52.8 in April, the seasonally adjusted IHS Markit/CIPS UK Services PMI® Business Activity Index picked up slightly from March’s 20-month low of 51.7.

The latest reading still only signalled a moderate increase in service sector activity, with the rate of growth the second-weakest since September 2016.

A number of survey respondents noted that subdued consumer willingness-to-spend had held back business activity growth in April. Alongside the soft patch experienced by consumer-facing firms, there were also reports that concerns about the domestic economic outlook had acted as a brake on spending by corporate clients. Measured overall, latest data indicated the second-weakest rise in new business since August 2016 (exceeded only by last month’s weather-related slowdown).

April data pointed to a marginal fall in backlogs of work at service sector firms, which ended a three- month period of expansion. Some companies cited the completion of work that had been delayed by snow disruption in March.

The rate of service sector employment growth moderated to its weakest since March 2017. Survey respondents noted that higher payroll costs and tight labour market conditions had weighed on staff recruitment in April. In particular, some firms commented that difficulties recruiting suitably skilled staff had prompted greater efforts to boost operational efficiency.

Higher salary payments continued to push up cost burdens across the service economy in April. Anecdotal evidence linked the latest rise in average input costs to the increased national living wage and rising pension contributions.

However, the overall rate of input price inflation eased since March and remained softer than at any time in 2017. Moreover, the latest rise in average prices charged by service sector firms was the joint- slowest since July 2017.

Despite the relatively subdued demand trends reported in April, latest survey data revealed an improvement in business confidence across the service sector. The balance of companies expecting a rise in business activity over the year ahead reached its highest level since January. This was attributed to forthcoming product launches, new marketing plans and discounting strategies.