According to the report from S&P Global/CIPS, activity in the services sector rose sharply in February, reaching the highest level since June 2022, while overall input cost inflation fell to its lowest since June 2021. Business optimism in the services sector also improved markedly in February.
UK Services PMI rose to 53.5 points from 48.7 points in January. Consensus estimates suggested an increase to 53.3 points. The index rose above the 50-point mark, indicating an expansion in activity, for the first time in six months.
The data also showed that volumes of new work returned to expansion territory. Some firms noted a rebound in business investment among clients, partly due to the improving global economic outlook. Overall, the growth rate of new orders was the highest since May 2022. Meanwhile, export orders showed the strongest growth in three months amid stronger demand from customers in the United States and Western Europe. The number of jobs also increased in February, helped by rising consumer demand and long-term business expansion plans. However, the rate of job creation was much lower than the average in 2022. Intense salary pressures and the need to cut costs were commonly cited as constraints on staff hiring. Against this background, the growth of backlogs of work resumed. Higher staff salaries and increased energy costs remained the main factors that led to another month of historically strong input price inflation. However, the overall increase in costs was the lowest in 20 months, which was due to a drop in wholesale gas prices, lower delivery rates and lower fuel bills. Average prices charged by service providers continued to rise sharply in February, and the rate of inflation slowed to a much lesser extent than seen for input costs. As for the prospects, the share of companies forecasting an increase in business activity over the next 12 months (50%) confidently exceeded the share of those predicting a decline (11%). The resulting index was the highest in 11 months.