Return to the office boosts UK economy as services sector bounces back

Britain’s dominant services sector has clocked up one of its best months after Covid restrictions ended and workers returned to the office.

In an upbeat report on the state of the UK economy, S&P Global said its closely-watched index of activity in the sector rose to 62.6 in March, well above the 50 mark that divides growth from contraction.

It was the second strongest reading for 25 years, only beaten by the post-lockdown recovery last May – boosting hopes that the country can weather the cocktail of threats hanging over the global economy from the war in Ukraine to soaring prices.

Firms in the sector, from train operators and estate agents to restaurants and hairdressers, were boosted by workers returning to the office, the report said.

The UK fared far better than the eurozone, which is still held back by worries about the pandemic and recession.

Tim Moore, economics director at S&P Global, said companies specifically mentioned ‘stronger demand arising from the return to offices, alongside a resurgence in the travel, leisure and entertainment sectors’.

But businesses fear rising inflation would squeeze their profit, and optimism for the year ahead was at its lowest level since 2020.

A mixture of factors, from supply chain bottlenecks to a reduction in supply of fuels from Russia, has bumped up costs. 

The rate of inflation in prices charged in March was the steepest since the indexes began in 1996.

This will come as a blow to households who were looking forward to getting out and about, following the end of Covid restrictions, as the cost of everything has gone up.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, which compiled the report with S&P, said: ‘People returned to work and had a flutter of spending on hospitality and entertainment before energy and fuel prices increase in April and potentially purse strings are tightened again.’ 

He added that there were ‘fewer reasons to be cheerful this month’, despite a ‘stellar recovery’, as the cost of living surges.

Workers in the services sector were helped by a rise in job creation in March, as staffing numbers leapt at the fastest rate since October. Even so, businesses are struggling to find the right staff.

Moore said many businesses said they were yet to pass on the full extent of cost spikes.

In the eurozone, S&P said exports were declining as the war hit travel and transport. 

Chris Williamson, chief business economist, said: ‘A recession [in the eurozone] is by no means assured, as the extent to which the economy could suffer in the coming months will depend on the duration of the war and any changes to fiscal and monetary policy.’