UK Service Sector Recovers In May

British service sector activity expanded at the fastest pace in three months in May, despite Brexit-related uncertainty, survey data from IHS Markit showed Tuesday.

The IHS Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index, rose more-than-expected to 54.0 in May from 52.8 in April. The index was forecast to improve to 53.0.

Any reading above 50 indicates expansion in the sector. The latest score was the highest since February.

New business volumes continued to rise at a relatively subdued pace in May as uncertainties surrounding Brexit continue to hold back decision making among clients. The latest increase in overall new work was still one of the weakest seen since the summer of 2016.

At the same time, tight labor market conditions placed upward pressure on staff wages and difficulties recruiting suitably skilled staff in May.

A combination of rising salary payments and greater fuel bills resulted in another strong increase in average cost burdens. Despite higher input cost, the rate of charge inflation slowed further to its weakest since June 2017.

Business confidence across the service sector moderated for the third time in the past four months.

The three PMI surveys indicate that GDP looks set to rise by 0.3- 0.4 percent in the second quarter, Chris Williamson, chief business economist at IHS Markit, said.

The signs of economic growth rebounding in the second quarter will likely up the odds of the Bank of England hiking interest rates again in coming months, likely August, but with the forward looking indicators suggesting that the economy could relapse, a rate rise is by no means assured, Williamson added.

Data provides further reassurance that the weakness in GDP growth in the first quarter will prove temporary, Ruth Gregory, an economist at Capital Economics, said.