The Markit/CIPS Services Purchasing Managers’ Index (PMI), a closely watched gauge of Britain’s services industry, rose to a three-month high of 55 points in March from 53.3 points in February.
That topped all forecasts in a poll of economists, whose median forecast was for a reading of 53.5points, pushing sterling almost half a cent higher against the dollar. But there were some warning signals as Britain begins the two-year process of leaving the EU.
Services companies raised their selling prices at the fastest pace since 2008, a sign that inflation may rise more than the 3percent expected by many forecasters this year. Businesses hired people at the slowest pace in seven months.
Taken together, the PMIs for manufacturing, construction and services published this week suggest economic growth will slow to around 0.4 percent in the first quarter from 0.7 percent in the fourth quarter of 2016, data firm IHS Markit said.
Growth of 0.4 percent would be in line with the most recent poll of economists but slower than the 0.6percent predicted by the Bank of England.
“The PMI does not cover the retail sector, and hence may be overestimating growth somewhat given the concentrated hit in that area,” JPMorgan economist Allan Monks said.
But conditions outside Britain had clearly improved and there was uncertainty about how quickly consumers will respond to higher prices, he said in a note to clients.
Read also: #Brexit likely to affect SA firms
The BoE is widely expected to keep interest rates at their record low throughout this year and possibly until 2019 as it steers the British economy through the uncertainty linked to the exit from the EU.
However, one rate-setter voted last month for a rate increase and others said they might follow suit soon if there were signs that the economy was maintaining its momentum of 2016.
Despite the stronger-than-expected headline growth figure in the PMI, the survey also suggested consumers were cutting back on luxuries. Hotels and restaurants, gyms and hairdressers ranked among the worst-performing services in the first three months of 2017.
“Much of the disappointment in growth so far this year has been evident in consumer-oriented sectors, in part linked to spending and incomes being squeezed by higher prices,” said Chris Williamson, chief business economist at IHS Markit.
Official data yesterday showed modest improvement for one of Britain’s most persistent economic headaches, weak productivity.