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UK service sector growth jumps to year-high, but inflation passed to customers

The UK’s services sector rebounded to its strongest growth for a year last month amid robust consumer spending, according to new data.

However, prices for consumers increased further as businesses passed higher wage costs onto their customers.

The S&P Global/CIPS UK services PMI survey showed a reading of 55.9 for April, up from 52.9 the previous month.

It was the highest reading since April 2022.

Any reading above 50 is considered growth, below that means the sector is shrinking.

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It was beyond the expectations of economists, who had predicted a reading of 54.9 for the month.

Tim Moore, economics director at S&P Global Market Intelligence, said: “A strong rate of service sector growth meant that the UK economy started the second quarter of 2023 in positive fashion.

“Overall private sector output expanded at the fastest pace for one year, despite another fall in manufacturing production during April.

“Strong growth in spending on travel, tourism and leisure was a tailwind for the service economy in April, alongside a sustained recovery in international visitors.”

Firms said that “strong consumer spending” was a significant factor for growth over the month.

Travel and tourism demand support the sector, as well as a recovery in demand for business services.

The data showed that another improvement in export sales also helped new orders strike a 13-month high.

Nevertheless, companies said business expenses grew in April as a result of higher salary payments.

This helped drive an increase in the inflation of prices charged to customers, which had previously hit a 19-month low in March.

John Glen, chief economist at the Chartered Institute of Procurement and Supply (CIPS), said: “The boost in demand does come at the cost of higher inflationary pressures on the sector, and it is likely consumers will continue to see price increases for luxuries such as holidays and meals out.

“The difficulty in finding staff in a tight market also drove wages higher and was a significant contributor to the hike in prices.

“With the King’s Coronation around the corner and three bank holidays in May, the sector is optimistic for continued strong demand as spring turns to summer.”