UK Services Sector Shows Strongest Growth Since May, Gaining Momentum

The UK services sector has shown significant improvement, marking its most robust monthly performance since May of the previous year. January witnessed a notable uptick in business activity and new orders, prompting increased hiring by services sector firms. The UK services PMI index rose to 54.3 in January, up from December’s 53.4, marking the third consecutive month above 50, indicating growth, and reaching an eight-month high.

Furthermore, the encouraging news comes as cost inflation eased to its joint-lowest rate since February 2021. This reduction is attributed to lower fuel costs and raw material prices, even though staff salaries continued to experience an upward trend.

Tim Moore, the Economics Director at S&P Global Market Intelligence, emphasized the positive trends in the UK service sector’s performance. Output growth accelerated to its fastest pace in eight months, driven by increased business and consumer spending. The rebound in new orders during the winter months is linked to receding recession risks and improved financial conditions, encouraging clients to spend more.

Despite robust demand conditions, January witnessed a subsiding of inflationary pressures. Total input costs increased at one of the slowest rates in the past three years. Lower energy and fuel costs, along with falling raw material prices, contributed to this softer cost inflation.

Service providers attributing increased operating expenses to elevated wage pressures resulted in another month of a strong rise in average prices charged. However, the pace of inflation dipped to a four-month low.

The combination of falling inflation and improved order books provided a significant boost to business activity expectations across the service economy. The high degree of optimism regarding year-ahead growth prospects in January was the most pronounced since April 2023. This uptick in business confidence suggests that elevated levels of geopolitical uncertainty have yet to exert a significant constraint on service sector growth projections for 2024.