According to the report from IHS Markit/CIPS, the recovery in UK service sector output gained further momentum in May, driven by resurgent business and consumer spending in response to looser pandemic restrictions. This led to the strongest rate of employment growth for just over six years. Backlogs of work nonetheless continued to accumulate at a robust pace due to forward bookings, pressure on business capacity and staff shortages. Meanwhile, input cost inflation reached its highest since July 2008. A combination of strong demand and rising operating expenses resulted in the steepest increase in prices charged by service providers since the survey began in 1996.
At 62.9 in May, up from 61.0 in April, the headline seasonally
adjusted UK Services PMI Business Activity Index was above the 50.0 no-change value for the third month in a row. The latest reading pointed to the fastest rate of output growth for 24 years.
Service providers indicated a sharp and accelerated rise in new order volumes during May, with the speed of recovery the fastest since October 2013. This reflected a swift turnaround in domestic demand due to the reopening of the UK economy. Export sales fell slightly in comparison to April, which was attributed to tight restrictions on international travel and the impact of post-Brexit constraints on trade with EU clients.
May data pointed to a marked increase in unfinished work across the service economy. The latest accumulation of backlogs was the sharpest since July 2014. Survey respondents mostly cited better than-expected client demand. There were also reports that staff shortages and, in some cases, a reluctance of employees to return from furlough had contributed to rising volumes of work-in-hand.
Strong inflationary pressures did little to dampen business expectations for the year ahead, with confidence drifting down only slightly since April. The index remained close to March's 14-year high and signalled a strong degree of optimism about near-term business activity growth.
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