Service sector growth boosts UK - for now

The PMI survey is an important indicator of the level of activity in an economy. It stands for Purchasing Managers Index, and is based on a monthly survey sent to senior executives at more than 400 private-sector companies. It asks them about five major survey areas: new orders, inventory (ie stock) levels, output levels, deliveries from suppliers and employment. Therefore, it indicates how confident businesses are feeling and how close they are operating to capacity.

The latest data for the UK shows that many companies in the services sector are working at capacity, with full order books. The report from IHS Markit, who compile the PMI, shows that service sector business was only held back by a lack of suitably skilled candidates to fill vacancies had held back staff hiring and constrained business expansion plans. This tight labour market has led to rising wages in the skilled part of the sector, however this is not being passed on in higher prices - they are worried about the effect of the rise in base rate last month:

"Struggles around securing talent and the right skills were also a drag on a sector highly-dependent on trained staff even though job creation rose to its highest levels for half a year. Despite input prices rising as service providers paid more for fuel and higher salaries, output charges were up only modestly as businesses hesitated to pass on costs. With consumers already challenged by an interest rate hike and higher living costs, competition and promotional discounting by service providers at least spared households from an even sharper erosion of their budgets."

There are also concerns about the lack of balance in the economy, as the struggling manufacturing and agricultural sectors both slowed down. As services make up 80% of our GDP, growth is very dependent on strength in that sector.