British businesses experienced a strong rebound in orders in March as they prepared for easing Covid-19 restrictions this month and ramped up hiring for the first time since the crisis started.
The IHS Markit/CIPS composite Purchasing Managers' Index, which measures activity in the UK’s services sector and its manufacturers, jumped to 56.4 in March from 49.6 in February, moving into positive territory above the 50.0 threshold for the first time in three months. It also showed the strongest rate of output growth since September.
Meanwhile, a separate services PMI rose sharply to 56.3 in March from 49.5 in February, the fastest rate of output expansion for seven months, while business optimism improved for the fifth month running and was the highest since December 2006.
“UK service providers were back in expansion mode in March as confidence in the roadmap for easing lockdown restrictions provided a strong uplift to new orders,” Tim Moore, economics director at IHS Markit said.
"Total business activity increased at the fastest rate since August 2020 and this return to growth ended a four-month sequence of decline.
"Forward bookings for consumer services and rising optimism about recovery prospects resulted in extra staff hiring across the service economy for the first time since the start of the pandemic.”
Britain's economy contracted by 9.9 per cent last year – its worst performance in 300 years – after it ground to a halt at the onset of the pandemic last spring, closing businesses, schools and shops across the country.
However, the world's sixth-largest economy is projected to grow 5.3 per cent in 2021, according to the International Monetary Fund, following its highly successful vaccination programme.
Two thirds of services firms, which have typically been hit hardest by the lockdowns, expect business to increase over the year ahead, according to IHS Markit, the most positive reading since the end of 2006.
Some services companies said they received a boost from increased residential property transactions during March, thanks to UK Finance Minister Rishi Sunak's extension of the stamp duty land tax holiday until the end of June in his March budget statement.
A measure of employment turned positive for the first time since February last year, and pointed to the biggest increase in hiring since mid-2019 as businesses planned for reopening as restrictions gradually ease this month and next.
Britain's unemployment rate fell slightly to 5 per cent in the three months to January, from 5.1 per cent in the previous three-month period, despite many parts of the country entering a third Covid-19 lockdown, the Office for National Statistics said.
Economists expect unemployment to peak at 6 per cent in early 2022, after government measures to protect jobs are lifted.
Meanwhile, eurozone composite PMI rose to an eight-month high, increasing to 53.2 in March from 48.8 in February, as activity returned despite the services sector struggling with new lockdowns amid a third wave of coronavirus infections.
"The economy has weathered recent lockdowns far better than many had expected, thanks to resurgent manufacturing growth and signs that social distancing and mobility restrictions are having far less of an impact on service sector businesses than seen this time last year," Chris Williamson, IHS Markit’s chief business economist said.
Jack Allen-Reynolds, Europe economist at Capital Economics, said the positive composite PMI reading might be overstating how well the economy is performing as the level of activity remains low.
“PMIs exclude the retail sector, which has borne the brunt of recent Covid restrictions," he said.