Since the snowfalls earlier in the year, the service sector has battled with low turnout and even lower profits. Restaurant chains such as Prezzo, Bella Italia and Byron Burgers have had Company Voluntary Arrangements approved by their creditors, effectively closing down a proportion of local branches in a desperate bid to rescue business. As a result of the high street’s increased vulnerability, the Bank of England previously postponed a rate increase, but this decision is now looking to be overturned.
Now that the economic picture has brightened, and the weather has warmed up, the service sector has gone from strength to strength. According to the Purchasing Managers’ Index (PMI), the sector experienced the sharpest rise in new work in more than a year. The sunny weather boosted consumer spending and gave consumer confidence a slight nudge in the right direction.
The PMI survey is compiled by IHS Markit, and considered one of the most reliable indicators of growth. The services sector makes up four-fifths of the economic output in the UK and its strengths and slowdown have a significant impact on the success of the economy. It includes activities ranging from restaurants and hotels to accounting and the financial sector.
These figures illustrate the building growth of the economy which economists believe could lead to an interest rate rise when the Bank meets in the first week of August. Whether the rates go up or not, or if the economy dips or not, business finances should be prepared for every scenario. At the Credit Protection Association, our debt recovery services free up cash flow and provide our Members with a bit of extra financial cushion. The extra cash can either go on expansion or new equipment, or it can go on sustaining positive economic behaviour.
Ruth Gregory, senior economist at Capital Economics, said: “With the survey providing further reassurance that the weakness in GDP growth in the first quarter was temporary and that wage cost pressures in the services sector are building, we continue to think that interest rates will rise at the MPC’s next meeting on August 2.”
The survey showed that Brexit-related uncertainty had held back business investment in the services sector, particularly in relation to spending by large corporate clients.