Growth in services sector races ahead

The pace of growth in the service sector of the economy is picking up sharply, leading to skill shortages and upward pressure on pay. A new survey of purchasing managers working in services companies showed strength across the board, from financial and business services to hotels and restaurants.

Sales volumes on the high street also strengthened last month, according to a separate CBI survey of retailers. The biggest jumps were in footwear and clothing, possibly boosted by the early Easter holiday.

The surveys for March follow news earlier this week of a record pounds 1.2bn increase in consumer credit February.

"It's as we thought. Manufacturing is holding up well, and services are just ripping away," said James Barty, an economist at Deutsche Morgan Grenfell.

Even so, almost no City experts think Kenneth Clarke will raise interest rates after what could be his final monetary meeting with Eddie George, Governor of the Bank of England, next week. Any increase in the base rate would almost certainly trigger higher mortgage rates, and the Chancellor is thought unlikely to take that risk so close to the election.

The new purchasing managers' services survey aroused a lot of interest in the City, as the sector is covered by very few statistics despite its importance to the economy. The parallel purchasing managers' index for manufacturing has a strong track record as an early indicator of trends in industry.

The new indicators are harder to interpret, with figures going back only nine months and some uncertainty about the normal seasonal fluctuations.

However, the figures indicated a rapidly rising level of activity, of new business and employment. They also showed that service sector companies are having to pay sharply higher salaries, although not yet passing these on in rising prices.

The activity index jumped from 60.4 in February to 63.3 in March, well above the 50 "boom-bust" watershed. The index for new business rose from 60.9 to 62.4, and for employment from 56.8 to 57.6. Nearly 85 per cent of the companies surveyed expect business to pick up still further this year.

The index of input prices - mainly salaries - was 57, down from 58.9 in February but still indicating a sharp rise. Prices charged have been rising at a gentler pace, with their index at 51.6 in March.

"Inevitably rising costs will find their way out in prices at some point but it depends on how long this very confident mood stays in place," said Peter Thomson, director-general of the Chartered Institute of Purchasing and Supply.

Yesterday's CBI survey showed a modest recovery in the volume of retail sales - the main area of services not covered by the purchasing managers' survey. Kate Barker, the CBI's chief economist, said the improvement was likely to continue into April. The balance reporting higher rather than lower sales was 33 per cent, up from 24 per cent in February.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ann: Senior Finance Analyst

£45,000: Ann: My client is a FTSE 250 retailer based in Central London and the...

Anna Woodward: Reporting Analyst

£35,000: Anna Woodward: Are you excited about making an impact on a FTSE 250 b...

Anna Woodward: French Sales Ledger Clerk

£23,000 - £28,000: Anna Woodward: My client is aleading global manufacturer an...

Christine McCleave: Accounts Assistant

£22,000 - £25,000: Christine McCleave: Are you looking for a new opportunity a...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower