–Confidence At Highest Since Sept 2009; See Continued Recovery
–Input Costs Rise But Competition Preventing Pass-Through So Far
–Output Price Inflation At Lowest For 2010 So Far
–New Business Component Maintains Strong Growth
–Economist Suggests Survey May Show Too Rosy A View Of Recovery

LONDON (MNI) – UK services maintained their solid rate of recovery
through March although the pace of growth eased from February’s rate,
according to the latest Chartered Institute of Purchasing &
Supply/Markit Purchasing Managers’ Index.

The survey also showed an increase in employment for the first time
in two years and CIPS/Markit said that the latest survey results are
consistent with a rate of service sector growth similar to that seen in
Q4.

The survey reading was, however, somewhat lower than the market
consensus of around 58.0 compared with February’s 58.4 and cable came
off session highs on the news.

CIPS/Markit said that confidence over future activity also
supported payroll growth at the end of Q1, with business expectations
reaching their highest since September 2009. Companies are widely
forecasting continued recovery from recession over the coming year,
which is expected to lead to higher levels of new business and activity.

Input costs rose further last month March although, having
accelerated in recent months, inflation was at its lowest of 2010 so
far. Respondents noted fuel prices continued to rise, while there
was some evidence that suppliers had increased their charges.

CIPS/Markit said that service providers’ own pricing power
continued to be limited in March by ongoing competitive pressures.
Following two months of inflation, average output charges were very
slightly down in the latest survey period.

New business seems to be key to the continuing revival in the
sector. The new business component of the survey has now risen for nine
months in a row, although March growth was off the two-and-a-half year
peak seen in February.

Commenting on the report, David Noble, Chief Executive Officer at
the Chartered Institute of Purchasing & Supply, said:

“It is hugely encouraging to see the number of jobs in the sector
increase for the first time in nearly two years. Whilst business
conditions have been recovering for a few months now, most employers
have been wary of taking on new staff until sure this is a genuine and
sustainable recovery. Whilst the employment increase was only marginal,
we do seem to have reached a tipping point which hopefully means we will
see continued job creation throughout the year”.

“Input costs rose again in March as suppliers began to increase
some of their prices. However, strong competition in the services sector
means businesses are not able to pass these costs onto customers and so
are having to absorb them themselves. Whilst this may be good news for
those worried about inflation, it is less positive for the profitability
of these businesses. At some point they will have to start passing costs
on to customers”.

Paul Smith, Senior Economist at Markit Economics said:

“The UK recovery remains on track, with the service sector posting
a pace of expansion consistent with those seen at the end of 2009. Over
the first quarter, the headline index has averaged a reading broadly
unchanged since Q4, pointing to a decent contribution from the services
economy to Q1 GDP numbers. With positive manufacturing and construction
PMI data indicating that recovery is increasingly broad-based, Q1
economic growth should at the very least match Q4’s pace”.

Daiwa Securities’ Senior Economist Colin Ellis, however, cast
doubts on the upbeat picture of the recovery painted by this latest
survey:

“While recent revisions have seen GDP growth in Q409 reach 0.4%Q/Q,
that is still a sub-trend pace of growth. And the PMIs, in contrast,
continue to paint a very different picture….given that the BCC
services survey has a much larger sample size than the services PMI –
about 4000, compared with 700 – we would tend to put more weight on the
Chambers of Commerce than the Purchasing Managers. As such, we still
think that GDP growth will come in below its trend pace (of 0.6%Q/Q) in
Q110 – and, furthermore, there is still little sign of a strong engine
of recovery to generate the persistent and robust above-trend growth
rates that are required to close the output gap”.

Global Insight’s Howard Archer suggested that the deceleration in
services growth seen last month was not anxiety inducing:

“The fact that the purchasing managers’ business index for the
services sector fell back more than expected in March is nothing to
really worry about. It is clear that services activity in February had
been lifted by some of January’s weather-related loss in business being
made up. Indeed, the hit to services activity in January is highlighted
by the ONS reporting that services output fell by 0.7% month-on-month”.

“At 56.9 in March, the business activity index was still well into
expansion territory. Furthermore, other elements of the survey bode
relatively well for services activity in the near term at least, with
incoming new business seeing pretty solid growth, business expectations
climbing to a near three-year high and employment in the sector edging
up for the first time since April 2008″.

–London Bureau; Tel: +442078627492; email: ukeditorial@marketnews.com

[TOPICS: MABDS$,M$B$$$]