UK Economic Growth Bounces Back as Service Sector Expands

By Edwin Owusu-Peprah    27-Jul-2018 11:19 UTC+02:00

Despite faltering in the first quarter of 2018, the UK economy has since rebounded – largely on the strength of its services sector, which is responsible for nearly 80% of the country’s GDP. As reported by The Guardian, IHS Markit chief economist Chris Williamson has cited evidence suggesting that the economy has grown by 0.4% in the just-elapsed second quarter.

Three months of healthy growth in services

The second-quarter figure would be double the growth rate recorded for the January to March quarter, when it is thought that the brutal weather summarised as the “beast from the east” dragged on the services sector’s health. Still, the consistently warm weather appears to have lured more people into spending at hotels, bars and restaurants which largely form the sector’s lifeblood.

In collaboration with the Chartered Institute for Procurement and Supply, IHS Markit carried out a health check revealing the economy’s second-quarter growth to have been its highest in eight months. Details of the survey revealed that business and financial services saw strong demand.

How the growth rate could impact the interest rate

Manufacturing and construction also outpaced expectations, according to other IHS Markit/Cips surveys for June. This has led the City to strengthen its speculation that the Bank of England’s monetary policy committee will approve an increase in the interest rate for August.

Williamson acknowledged that the spark of activity in the services sector evidenced an economic rebound and “opens the door for an August rate hike, especially when viewed alongside the news that inflationary pressures spiked higher,” referring to the 2.4% rate of inflation reached in May.

Summer optimism not just powered by the World Cup

For many Britons, the summer weather has been a far cry from the “beast from the east” of early 2018, when many services companies that typically strongly rely on footfall were unsurprisingly disrupted. The heat wave has also increased the country’s visitor numbers, reports The Week.

These tourists are undoubtedly people who would have been attracted to drinking at British bars and tucking in at UK eateries. Hence, it is important for businesses in the services sector to learn more about and consider taking out public liability insurance, which can help them pay compensation should accidents occur.

The UK isn’t necessarily out of the economic woods just yet

Despite the generally promising economic figures, Williamson noted: “It remains encouraging, yet also surprising, that current business activity continues to show such resilience amid relatively moribund confidence regarding the year ahead outlook.” For this reason, it is vital that businesses continue to rein in their spending where possible.

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