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Posted on 14/05/2013

Service sector offsets construction contraction, according to Markit/CIPS PMI

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The fastest growth seen in the service sector for seven months has helped offset the construction contraction in March, according to PMI data from Markit and the Chartered Institute of Purchasing and Supply (CIPS).

March was a good month all round for the service sector with new business volumes rising at the strongest rate since last May. Business confidence was also at a ten month high and employment fractionally increased.  Data showed that 47 per cent of service providers are anticipating higher activity in the coming months.

The headline seasonally adjusted Business Activity Index registered 52.4 in March, up for February’s 51.8. A reading above 50 indicates growth.

David Noble, Chief Executive Officer at the CIPS, said, “It seems the service sector has finally found the ingredients, which if mixed correctly, may well result in the right recipe for sustained growth in 2013.

“Surging confidence, a boost to employment and the strongest increase in new business since May 2012 rounded off a solid month for the service sector.”

Despite still registering a contraction the pace of decline is slowing in the construction sector. The sector registered a figure of 47.2 during March, an improvement when compared to the 46.8 in February which signalled a 40 month low.

The organisation suggested that a combination of subdued underlying demand and unusually bad weather conditions had contributed to lower construction output over the period.

Tim Moore, Senior Economist at Markit and author of the Construction PMI, said, “Shrinking investment spending and intermittent output disruptions amid unusually bad weather kept the UK Construction PMI entrenched in contraction territory at the end of the first quarter.”

Despite the gloomy figures Mr Moore noted there were some pockets of optimism most notably in housing activity. March also saw the slowest drop in construction new orders for five months suggesting the sector is stabilising although the lack of new projects remains a concern.

Looking ahead, construction companies (on balance) forecast a rise in output over the coming year, mainly reflecting hopes that capital spending will improve. The degree of positive sentiment picked up in March to its highest in eleven months.

Despite the positive outlook it’s important for businesses in both the service and construction sectors to remain cautious, as outside influences can have an impact as the bad weather conditions have demonstrated. Ensuring the cash flow remains healthy and the risk of late payments is minimised can help businesses absorb any negative impact.

Regularly reviewing customers’ and suppliers’ by using credit reports or a risk monitoring service ensures the supply chain stays strong and reduces the likelihood of knock on effects.