Service sector

UK service sector optimism hits highest level since 2006 | Service sector

Optimism in the services sector improved for the fourth consecutive month in February to its highest level since 2006, reflecting hopes that the rollout of the Covid-19 vaccine will lead to a strong economic rebound.

The IHS Markit survey found business leaders plan to expand their business over the next 12 months despite several months of falling orders during the UK’s third lockdown and port delays after the conclusion of the Brexit trade deal with the EU in December.

Restrictions on international travel were the most often cited reason for the drop in exports, along with increased paperwork at UK ports since January, which has also stifled business activity by limiting essential imports, have said the companies.

Most companies have looked beyond their current struggles to focus on the prospect of looser trade restrictions resulting from a successful vaccine rollout program.

The IHS Markit/CIPS Purchasing Managers’ Index (PMI) covering the services sector stabilized at 49.5 in February, up sharply from an eight-month low of 39.5 in January. A number of 50 separates contraction from expansion.

Tim Moore, Chief Economics Officer at IHS Markit, said: “While customer-facing businesses continued to report severe business constraints due to the pandemic, there were signs of technology growth and of certain business services after a disappointing start to 2021.

“Survey respondents cited regulatory issues and supply disruptions as factors holding back new contracts with EU customers, which more than offset the positive impact on overseas demand. economic recovery in the United States and Asia-Pacific.”

There was a warning from survey respondents about rising prices, which they said were passed on in February partly in response to Covid-related shipping shortages on major international routes and delays related to the Brexit.

Howard Archer, chief economic adviser at EY Item Club, said the outlook remained uncertain despite several forecasts showing consumers who had accumulated high levels of savings were ready to spend them in the second half.

“Consumers are well positioned to play a key role given recent high savings rates, although much will depend on the extent of rising unemployment. After a long period of weakness, business investment is expected to pick up during the year as businesses gain confidence in the economy.

Increased optimism has also helped stabilize employment, with only a slight decline in service businesses, which account for around three-quarters of UK economic activity.