Activity in the UK's dominant services sector rose at a faster-than-expected pace in March. The Markit/CIPS purchasing managers' index (PMI) for services rose to 55, compared with economists' expectations of a slight increase to 53.5. The services sector, which accounts for three-quarters of the UK economy, said business activity and new work grew at the strongest rate so far this year.
However, cost pressures led to the fastest rise in prices since late 2008. The pound rose 0.3% against the dollar to US$1.2478 after the survey found that business activity expanded at the quickest rate since December.
Respondents were also optimistic about the year ahead, while there was evidence that the fall in the value of sterling since the Brexit vote had led to new sales inquiries from abroad and demand for overseas clients, especially in the US. However, jobs growth was only marginal, with some companies saying tighter margins and rising wage bills meant that they were not replacing those who had left.
Despite the rise in services activity, data out earlier this week showed that growth in the manufacturing and construction sectors eased in March.
Meanwhile, productivity figures released on Wednesday showed output per hour rose by 0.4% in the final quarter of 2016, and by 1.2% compared to the same period in 2015.However, the Office for National Statistics said the rate remained below the pre-financial crisis average.
Chris Williamson, chief business economist at IHS Markit, believed that economic growth for the first quarter of 2017 would slow. The upturn fails to change the picture of an economy that slowed in the first quarter, he said.
The relative weakness of the PMI survey data compared to that seen at the turn of the year suggests the economy will have grown by 0.4% in the first quarter, markedly lower than the 0.7% expansion seen in the fourth quarter of last year.
Ruth Gregory, economist at Capital Economics, estimates that UK GDP will grow by about 0.5% in the first three months of the year.