UK services surge but Ukraine war hits sentiment

UK services activity surged in March as pandemic restrictions were removed but the war in Ukraine hit business confidence, a survey showed.

The headline S&P Global/CIPS UK services purchasing managers index rose for the third month to 62.6 from 60.5 a month earlier. The rate of expansion was the strongest for 10 months and the second strongest since May 1997.

Orders rose strongly in March with travel, leisure and entertainment businesses reporting especially healthy demand as Covid-19 restrictions were lifted. Jobs were created at the fastest rate since October 2021, pushing up salaries.

The UK's dominant business sector expanded despite fast-rising prices for its services. Output charges rose at the fastest pace since the survey began in July 1996 and many respondents said they had not yet passed the full impact of higher operating costs on to customers.

The outlook was less buoyant as Russia's invasion of Ukraine and the resulting economic uncertainty sent optimism down for the second month running to its lowest since October 2020. Respondents also said the effect of rising inflation on household budgets put a break on growth expectations.

Tim Moore, economics director at S&P Global, said: "UK economic growth continued to surge higher in March after an Omicron-induced slowdown at the turn of the year. Service sector companies led the way as business activity expanded at the fastest pace since the post-lockdown recovery seen last May.

"However, the near-term growth outlook weakened as the war in Ukraine and global inflation concerns took a considerable toll on business sentiment."

The survey includes coffee bars, restaurants and other consumer services as well as transport, travel, business services and finance.