The UK's services sector experienced a rebound in growth last month, according to a closely watched survey, but experts have cautioned that the recovery may be short-lived amid surging costs and weakened demand linked to geopolitical tensions.
PMI Reading Shows Modest Improvement
The S&P Global UK services Purchasing Managers' Index (PMI) registered 52.7 in April, up from 50.5 in March. Any reading above 50.0 indicates expansion, while below signals contraction. The sector, which encompasses hospitality, leisure, healthcare, and transport, has been growing for nearly a year. However, the latest reading represents a slower pace of growth compared to the start of 2026.
Cost Pressures Intensify
Businesses reported that cost pressures ramped up sharply in April, with input prices rising at the fastest pace since November 2022. Firms attributed higher bills to fuel costs and raw material prices, including metals and plastics, driven up by soaring energy prices since the onset of the Middle East conflict. Many also cited pressure from higher wages following the increase in the national minimum wage at the start of April.
Tim Moore, economics director at S&P Global Market Intelligence, noted that the modest recovery could easily prove short-lived as new business intakes remained subdued. Survey respondents widely highlighted that the Middle East conflict and subsequent global supply chain disruptions had weighed heavily on business and consumer confidence.
Demand and Export Weakness
Some firms reported lower export sales due to disruptions to business travel and weaker demand in the Middle East. However, resilient global demand for technology services and a decrease in backlogs of work provided some support.
Matt Swannell, chief economist for the Item Club, agreed that there were already signs the jump would be short-lived, with little improvement in new work amid weak domestic and foreign demand. He warned that the outlook for private sector activity is gloomier, as a sharp rise in inflation will reduce households' real incomes and slow spending growth. Supply chain disruption, rising costs, and lingering geopolitical uncertainty may cause businesses to postpone investment plans.
Interest Rate Implications
Swannell suggested that the survey indicates the Bank of England will likely keep interest rates steady for the rest of the year, but a hike in the summer remains possible. Thomas Pugh, chief economist at RSM UK, said firms showed resilience in April, but the rebound was partly fueled by a rush of activity before price rises and supply shortages take full effect. He added that future rate hikes are more likely, but everything depends on energy price movements going forward.
