The British economy is showing signs of having come through the worst of its recent slowdown triggered by bad weather, after the dominant services sector expanded more quickly than expected.
Despite the better news from the latest business survey by IHS Markit and the Chartered Institute of Procurement and Supply (Cips), the key barometer for the largest sector in the economy revealed mounting fears over Brexit.
The latest snapshot from the Markit/Cips UK Services PMI showed activity in the sector, which includes banks, restaurants and hotels, recovered to a three-month high in May. However, firms responding to the survey said business volumes had continued to rise at a relatively subdued rate, citing Brexit as a key reason for the slow growth.
The Cips group director, Duncan Brock, said: “It felt as though the sector was losing its lifeblood this month as Brexit worries continued to claw away at confidence.”
The reading on the PMI, where anything above 50 indicates expansion, rose to 54.0 in May from 52.8 a month earlier, beating economists’ expectations for a modest rise to 53.
Showing greater strength for the economy than previously feared, the increase will put pressure on the Bank of England to raise interest rates, potentially from as early as August. The pound reflected that optimism, rising two-thirds of a cent to $1.3275.
Threadneedle Street delayed an increase for borrowing costs last month after the “beast from the east” blew the economy off course, preferring to wait and see if businesses and consumers would get back to spending and selling goods as usual.
Service providers in the latest PMI survey cited a catch-up from the snow-related disruption of the first three months of the year, alongside sustained growth of incoming new work. However, the latest increase in overall new work was still one of the weakest seen since the summer of 2016, straight after the EU referendum.
Chris Williamson, the chief business economist at IHS Markit, said: “With the forward-looking indicators suggesting that the economy could relapse, a rate rise is by no means assured.”
