UK service firms step up hiring despite unexpected slowdown

Reuters News
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Posted: May 03, 2012 5:09 AM
UK service firms step up hiring despite unexpected slowdown

By Olesya Dmitracova

LONDON (Reuters) - Business in the British service sector grew more slowly than expected in April as clients remained cautious, although firms' optimism rose to a two-year high and hiring picked up pace, a survey showed on Thursday.

Combined with slower growth in manufacturing and construction, the data will fuel talk that the Bank of England may overcome its reluctance to inject more monetary stimulus into the economy, which has plunged into recession again around the turn of the year according to official figures.

The main Markit/CIPS Purchasing Managers' Index (PMI) for the service sector - measuring the change in business activity such as income or chargeable hours worked - fell to 53.3 from 55.3 in March.

That was the lowest reading since November and compared to analysts' forecasts for a smaller drop to 54.2, although the index still remained above the 50-mark that separates growth in activity from a decline.

PMI surveys earlier this week showed that manufacturing and construction also expanded, albeit less than in March.

"From what we are hearing from panelists, this certainly does not sound like an economy in recession," said Chris Williamson, chief economist at Markit, which compiles the surveys.

"The PMI surveys suggest that the economy will have expanded again in April, and that the recent gloomy official data pointing to a downturn in the first quarter will eventually be revised to show modest growth."

Official data had shown that the economy shrank in the final quarter of 2011 and the first three months of 2012, dragged down by a fall in manufacturing output and a steep decline in construction.

The Bank of England has hinted that it was giving more weight to surveys such as the PMI, which have painted a more upbeat picture so far. Economists have taken that as a sign the central bank was reluctant to extend quantitative easing asset purchases at its meeting next week as inflation remains sticky.

However, Markit's composite index, which brings together all three business sectors, pointed to economic growth last month, although at the weakest pace since November when turmoil in the euro zone was particularly disruptive.

Better market conditions and a solid rise in new business boosted activity in the service sector in April, Markit said.

Backlogs of work grew for the first time in more than a year and companies responded by increasing their workforce.

Hiring was also supported by a rise in confidence about the future to the highest level since March 2010, with over half of firms expecting brisker activity in a year's time and only 7 percent forecasting a decline.

For now, the economic environment remained tough, limiting firms' ability to raise their charges despite higher costs, lifted mainly by fuel prices, Markit said.

The services survey covers transport, storage and communication, financial intermediation, business services, personal services, computing and IT and hotels and restaurants, but excludes retail.

(Editing by Toby Chopra)