Wednesday 21 March 2018

Inflation rises as services sector growth hits 10-month high

Economic activity picking up says Investec’s Philip O’Sullivan, centre, pictured at a Brexit briefing earlier this year in Dublin
Economic activity picking up says Investec’s Philip O’Sullivan, centre, pictured at a Brexit briefing earlier this year in Dublin
Colm Kelpie

Colm Kelpie

The rate of expansion in the services sector here hit a 10- month high in April.

Companies were able to take advantage of improving client sentiment to secure greater amounts of new business.

But cost inflation was the highest in the year so far, and output prices also increased at a faster pace, according to the latest purchasing managers index for the sector.

Philip O'Sullivan, economist with specialist bank Investec, said Irish services companies remain strongly optimistic.

More than 10 times as many firms expect to record growth in activity over the coming 12 months as opposed to those who anticipate a decline. "All in all, there is a sense of déjà vu in the above, given that Tuesday's Investec Manufacturing PMI release also pointed to stronger new business, expanding headcounts and some pressure from input costs," Mr O'Sullivan said.

"Taken together, this week's reports suggest that economic activity in Ireland picked up at the beginning of the second quarter."

The seasonally-adjusted business activity index hit 61.1 in April, up from 59.1 in March.

The rate of new business was substantial, and faster than recorded in the previous month.

The rate of job creation was sharp, albeit the weakest in five months.

Meanwhile, the Markit/CIPS Purchasing Managers' Index of Britain's giant services industry unexpectedly rose to a four-month high of 55.8 in April, above all the forecasts in a Reuters poll of economists.

The reading was the second strongest since mid-2015, a good backdrop for British Prime Minister Theresa May and her Conservative Party who are trying to convince voters that the opposition Labour Party cannot be trusted to run the economy after the June 8 election.

At the same time, the survey included some warning signs for the economy, which has so far coped with the shock of last June's Brexit vote much better than expected by the Bank of England and private-sector economists before the referendum. Prices charged by service firms rose at the fastest pace since July 2008 and company executives reined in their optimism about the year ahead for a third month in a row.

Taken with PMIs for manufacturing and construction published this week, the April survey suggested the economy was growing at a quarterly pace of 0.6pc at the start of the second quarter, Markit said, double the pace of the first quarter.

IHS Markit economist Chris Williamson said that kind of momentum was unlikely to last as households increasingly felt the pinch from rising inflation. "We expect consumer spending to slacken in coming months," he said. (Additional reporting Reuters)

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business