Service sector activity accelerates in April

Service sector activity accelerates in April

May 7, 2024

It’s impossible to overstate the importance of the service sector to the modern UK economy. According to research by the House of Commons Library, it represents 81% of UK economic output and provides 83% of our employment. The service sector includes retail, financial services, public sector activities, business administration, hospitality, leisure and cultural businesses.

The S&P Global/CIPS Purchasing Managers’ Index (PMI)

There have been various slightly more positive economic indicators in the past month, with a slight uptick in GDP and a small fall in inflation. What has really caught the imagination of pundits has been the S&P Global/CIPS PMI figures for the service sector in April.

The Services PMI is an index incorporating survey results on various aspects of activity provided by firms in the services sector throughout the country. It has been gathering data since 1992. Any reading above 50 suggests the sector is expanding, while a reading below 50 implies that the sector is in contraction. Policymakers and traders watch these surveys closely, not just based on their proven accuracy in predicting trends but because the data is real time, rather than historic.

The reading for April 2024 was a robust 54.9, up from 53.1 in March. This was the strongest rate of growth for 11 months and above the long-term average of 53.2 between 2007 and 2024. By way of context, the all time high was 62.9 in May 2021 while the all time low was 13.4 in April 2020, both extremes being the direct result of the Coronavirus pandemic.

The news release accompanying the April PMI results highlighted that survey respondents typically commented on rising business and consumer spending, supported by a recovery in broader economic conditions. On the downside, some firms noted that cost of living pressures and subdued confidence among clients had acted as a brake on growth.


The latest figures from the Office for National Statistics (ONS) show that service sector GDP rose by 0.2% in the three months to February 2024 compared to the previous three months, but was 0.1% down on the comparable three months to February 2023.

Professional, scientific and technical activities were the largest positive contributor to the rise in services GDP in this three-month period, growing by 1.1% in the three months to February 2024. Other major contributions came from admin and support services (up 1.6%) and transportation and storage (up by 2.2%).

These positives were partially offset by a 1.4% fall in education, a 0.7% fall in human health and social work activities and a 0.7% fall in financial and insurance activities.


ONS reported that overall CPI inflation in March 2024 fell to 3.2% from 3.4% in February, but that within this, service sector inflation was far higher at 6.0% (down from 6.1% in February).

Drilling down within the sector, this outcome was supported by high inflation in two key sub-sectors. Restaurants and hotels saw 5.6% inflation, while recreation and culture came in at 5.3%. We comment below on two new cost pressures due to hit consumer-facing service companies as from April 2024.

Business failures

The worst affected service sub-sectors for insolvencies have long been hospitality and retail. Typically they account for 15% and 9% of total failures, respectively. Hospitality represented 16% of all insolvencies in February 2024, while retail was slightly below trend at 8% that month, but in both sub-sectors, the February outcome was significantly worse than in January.

Prospects for 2024 and 2025

Despite the positive signs of an improving economy, the cost of living crisis remains a significant negative factor for many service sub-sectors. Inflation may have eased and pay rises might finally have overtaken price rises, but there has been permanent damage to the disposable income of large sections of the UK population and their willingness/ability to spend.

In addition, two major cost increases have hit service businesses hard from the beginning of April. The consensus is that the rise in the National Minimum Wage is essential for the lower paid, but the impact on labour costs for the likes of retail and hospitality businesses is huge. Nationally, the Low Pay Commission says that 6.7% of jobs are governed by the NMW, but in those embattled sectors the percentage is much higher.

Simultaneously, the government’s long-time determination to avoid grasping the nettle of reforming the iniquitous business rates system has dealt the economy and the service sector, in particular, another heavy blow. According to property consultants Altus Group, the extra cost for the economy as a whole from the beginning of April will be £1.66bn a year.

Against this background, pondering whether and by how much the service sector grows over the remainder of this year and onwards into 2025 is probably not the right question. More important is whether it can make a sufficient level of profit to sustain itself and generate enough positive cash flow to continue to pay down the extra debt burden it took on in the pandemic.


If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.