By David Milliken
LONDON (Reuters) -Britain’s services sector returned to tepid growth last month after fears about U.S. President Donald Trump’s tariffs caused the sector to shrink in April for the first time in a year and a half, a survey showed on Wednesday.
The S&P Global Purchasing Managers’ Index for Britain’s services sector rose to 50.9 in May from 49.0 in April, and above an earlier flash estimate of 50.2.
The upward revision also lifted the composite PMI, which includes the smaller manufacturing sector, taking it above the 50-level which divides growth from contraction.
“Receding concerns about U.S. tariffs, recovering global financial markets and greater confidence among clients all helped to support output growth,” S&P Global economics director Tim Moore said.
April’s sharp drop in export orders substantially reversed itself while overall new orders also fell at a slower rate than the month before, helping lift expectations for future output to their highest since October.
Britain’s economy grew by a stronger-than-expected 0.7% in the first quarter of this year but the Bank of England said on Tuesday that it expected growth to slow, partly due to the downbeat message from a range of business surveys.
The PMI did show continued pressure on businesses from labour costs, reflecting a nearly 7% rise in the minimum wage and an increase in employers’ national insurance contributions, both of which most affect firms employing large numbers of lower-paid or part-time staff.
Businesses have cut staff numbers in each of the past eight months – largely by not replacing staff who left – although May’s pace of decline was the smallest in six months.
Firms’ costs rose less than in April but still at a rapid pace, which they again largely attributed to higher labour costs, while prices charged rose at the slowest rate in seven months due to increased competitive pressures.
That is likely to reassure the Bank of England, which is concerned that rapid wage growth will make it hard to get inflation back to its 2% target.
(Reporting by David Milliken)
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