UK services grow faster than forecast; price surge intensifies

[LONDON] The UK's services sector grew faster than expected in March as companies raised their prices at the quickest pace in 8 1/2 years.

The better-than-forecast momentum in IHS Markit's monthly Purchasing Managers' Index was accompanied by stronger growth in new business, though hiring slowed.

The headline activity gauge rose to 55 from 53.3 in February. That's above the key 50 level that divides expansion from contraction and far better than the 53.4 predicted by economists. The pound rose against the US dollar after the data and was at US$1.2473 as of 9.43am London time, up 0.3 per cent on the day.

The services PMI follows Markit surveys this week that showed both manufacturing and construction growth cooled in March. The company said the three reports point to economic growth of 0.4 per cent in the first quarter, which would be the weakest in a year.

While some companies cited Brexit-related uncertainty as holding back investment, strong domestic and global economic conditions were supporting sales and companies were optimistic about the year ahead.

Still, Markit warned in its services report of "intense cost pressures" because of the weaker pound and reported the fastest rise in selling prices since 2008. That could prove to be a curb on UK demand and growth.

"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 Markit.

Some firms said that squeezed margins and rising wage bills meant they weren't replacing staff who quit, with the rate of job creation the weakest since August.

Mr Williamson said the latest numbers back the argument that the Bank of England should keep policy on hold as it balances accellerating inflation against maintaining demand after the UK started formal talks to exit the European Union last week.

BLOOMBERG