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UK's vaccine rollout and lockdown easing lift services sector to 14-month high

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CARDIFF, WALES - APRIL 26: A waiter carries a tray of pints on April 26, 2021 in Cardiff, Wales. Outdoor hospitality reopens today in Wales and it is expected indoor hospitality will reopen from May 17. The infection rate across Wales now stands at 12.9 cases per 100,000 people for the seven days up to April 21. (Photo by Matthew Horwood/Getty Images)
Services accounted for 81% of gross domestic product (GDP) and 82% of employment between October and December last year. Photo: Matthew Horwood/Getty Images

Britain's largest sector rose to a 14-month high in April as the easing of lockdown measures and the nation's successful vaccine rollout programme boosted optimism in the economy.

The sector, which includes retail, hotels, banks and restaurants has been grappling to get back on its feet after being knocked down by the impact of the pandemic lockdowns. 

As the backbone of the UK economy, it accounted for 81% of gross domestic product (GDP) in 2020 and 82% of employment between October and December last year.

The country was at the height of the first lockdown this time last year with the vast majority of businesses closed, which plunged the sector to record lows.

A year later, confidence in the industry improved in April following the reopening of outdoor hospitality, gyms and non-essential shops on 12 April, rising 1.36 points to 99.86 from 98.50, the BDO said.

BDO's Output Index increased 47.57 compared to March. Kaley Crossthwaite, partner at BDO, said the sector is recovering from an "incredibly low base."

The latest services purchasing managers' index (PMI) also provided some much needed comfort, catapulting the sector to its fastest expansion since October 2013.

Services PMI — a closely watched barometer on the health of the UK economy — rose to 61.0 in April 2021, up from 56.3 in March.

Any value over 50 indicates an overall expansion in the services sector, a value of 50 means that there is no change in activity and anything below 50 is a contraction.

Employment in the sector also climbed for the second month in a row, accelerating to its fastest since October 2015, as stronger demand encouraged job creation in April.

Read more: British construction activity expands in April as raw material prices rise

It was not the only industry emerging from the shadows in the roadmap out of lockdown. 

BDO's Business Trends reports shows output in manufacturing also grew, but Brexit concerns dented optimism. 

"Lingering concern around the impact of Brexit on supply chains means that our recovery might not be as quick as it might have otherwise been, but overall this is much needed positive news for businesses across all the regions and nations of the UK," Crossthwaite added.

The group's Manufacturing Optimism Index rose by 2.97 points to 99.79 in April.This was bolstered by UK chancellor Rishi Sunak's super-deduction tax announced in the March Budget.

Meanwhile, separate figures released on Friday, showed a strong increased in construction output last month, despite costs rising at the fastest pace since the survey began in 1997.

The expansion almost matched a six-year record set in March, as the reopening of the economy and the lifting of restrictions boosted new orders.

However, the IHS Markit/ CIPS construction PMI came in slightly below expectations, easing to 61.6 in April from 61.7 in March. Economists had pointed to a reading of 62.3.

Watch:Bank of England says UK to recover from COVID by end of year

Britain's economy is rebounding rapidly, according to economists, as early data points to a boom in spending after reopening.

Analysts at German investment bank Deutsche Bank (DB) said the UK economy was off to a "roaring start", while analysts at Barclay's (BARC.L) said early indicators suggested a "sharp uptick in activity" after shops, outdoor restaurants, beer gardens and leisure facilities such as gyms reopened on 12 April. 

The Bank of England (BoE) last week, upgraded forecasts in its quarterly Monetary Policy Report and the Bank now expects the UK economy to grow by 7.25% in 2021. It had previously predicted growth of 5%.

The central bank's outlook follows similar forecasts by EY's Item Club, which expects Britain's economy to grow at its fastest rate since the Second World War thanks to a stronger than expected start than expected, potentially outpacing the growth in the US. 

EY expects UK GDP to grow by 6.8% in 2021, a significant upgrade on the 5% growth rate it estimated in January. This would mark the fastest annual growth in national income since 1941.

The UK economy entered its worst recession since 1709, shrinking 9.8% last year. While this was against the 9.9% initially estimated, it was still the worst performance in the G7 and the worst annual performance for over 300 years.

Watch:UK economy suffered worst year on record despite stronger bounce back

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