Services strengthen but job market growth eases

The service sector booked its fastest pace of growth in more than a year last month, although the uncertain outlook for the economy was underlined by a separate report today suggesting the jobs market is stalling.

The indicators came as the Organisation for Economic Co-operation and Development (OECD) lowered its second-quarter growth estimate for the UK from 1.3 to 1 per cent, forecasting that, save for earthquake-hit Japan, the UK economy would lag behind its G7 peers in the three months to the end of June.

On a more positive note, the Markit/Cips services purchasing managers' index, a widely followed gauge of activity in the UK's dominant sector, climbed to a 13-month high of 57.1 in March, up from 52.6 in February. Based on last month's figures, Markit estimated the economy grew 0.8 per cent over the first quarter.

Although signs of a bounceback in growth could fuel expectations of an imminent interest rate rise, economists predicted the Bank of England would not act at this month's meeting, which starts today.

Howard Archer, at IHS Global Insight, said: "We suspect that the Bank of England will treat the markedly stronger March services survey with some caution, as other surveys on the sector are less buoyant, including the reports by their own regional agents. Furthermore, there are mounting concerns that consumers are reining in their spending markedly, which is particularly worrying for growth prospects."

Markit's Paul Smith warned that fading confidence and rising costs raised doubts over whether March's growth could be sustained."Service providers remain very cautious about expanding headcounts in the face of economic headwinds," he added. These were underscored by this morning's REC/KPMG report on jobs, which showed the rate of expansion in permanent staff placements by recruitment consultancies slowed in March after hitting a 10-month high in February. The slowdown came despite the fastest rise in staff vacancies since last April. The report also revealed salary inflation for permanent posts hit its highest level in eight months in March.