Service sector rebounds as recession fears ease

THE UK’s service sector bounced back to growth in February in a sign that recession fears have eased and business optimism has improved.

Business activity grew for the first time in six months, and at the fastest pace since June.

The influential S&P Global/ CIPS UK services PMI survey showed a reading of 53.5 in February, up from 48.7 in January.

Any score above 50 is considered growth while a reading below indicates the economy is shrinking.

It marks the first time since August that business activity and volumes of incoming new work both expanded.

The reading also came in slightly ahead of expectations, with a group of analysts at Pantheon Macroeconomics predicting a score of 53.

The closely watched survey found that companies in the service sector – which includes everything from restaurants, pubs, hotels, hairdressers and builders - were significantly more optimistic last month.

Many firms said that their clients and customers were more confident due to reduced political uncertainty and hopes that inflation pressures were easing.

This led to the strongest rise in new orders since May last year.

Some firms also reported seeing a rebound in business investment from their clients, partly due to the improving global economic outlook.

Furthermore, input cost inflation fell to its lowest level since June 2021, largely thanks to falling wholesale gas prices, reduced shipping rates and lower fuel bills, the report found.

However, not all firms were giving cheery reports, with many still reporting challenges from squeezed budgets and cost-ofliving pressures hitting households.

And businesses still reported struggling under the weight of high electricity bills and pressure to raise staff wages as the labour market remained squeezed.

Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey, said: “Service providers appear confident that demand remains sufficiently resilient to pass on higher costs to clients.

“The latest survey indicated that business activity expectations rebounded to their highest since March 2022, helped by reduced political uncertainty, an improving global economic outlook, and hopes that peak interest rates are on the horizon.”