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UK service sector PMI reaches 55.3 in March

First-quarter index averaged its highest reading since second quarter of 2010.

The UK service-sector PMI (purchasing managers' index) hit 55.3 in March 2012, compared with 53.8 in February after accounting for seasonal factors, according to a survey conducted between 12 and 28 March by the Markit/CIPS (the Chartered Institute of Purchasing & Supply).

The indexes are calculated by assigning weights to the percentages. The percentage of respondents reporting an improvement/increase are given a weight of 1.0; the percentage reporting no change are given a weight of 0.5; the percentage reporting a deterioration/decrease are given a weight of 0.0.

If 100 per cent of the survey panel report an increase, the index would read 100. If 100 per cent reported no change, the index would read 50 (100 x 0.5), and so on.

The improved business climate and a modest rise in employment have contributed to the strong growth of both activity and new business in the country’s service sector during March 2012. Overall first-quarter growth was the strongest since the second quarter of 2010.

Service-sector firms kept on top of their increased workloads by adding to payrolls at a modest pace.

The 15th successive month of growth was also supported by growth in new business volumes and more work from existing contracts.

Chris Williamson, chief economist at the survey compilers Markit, said:

Faster growth of services activity in March indicates that the economy is on the up again, skirting recession as business continues to bounce back from the lull seen late last year.

The upturn accompanies a similar strengthening in construction activity and ongoing growth of manufacturing, suggesting the economy will have grown by as much as 0.5 per cent in the first quarter. The service sector is likely to have been a key driver of growth, expanding by around 0.7 per cent.

Business also remained upbeat about the year ahead, with confidence holding broadly steady on February’s 12-month high. Further growth should therefore be seen in the second quarter.

What’s particularly encouraging is that this revival of business confidence is encouraging firms to take on more staff. Service sector employment rose at undertaking marketing initiatives, which they are increasingly optimistic will pay off.

Market conditions remain difficult and we are not out of the woods by any stretch. A slight concern is the fastest rate for four years over the first quarter as a whole.

However, this is no run-away recovery. Although on the rise, job creation and inflows of new business continue to run well below rates generally seen in the years prior to the financial crisis.

David Noble, CEO of CIPS, said:

The UK service sector has rounded off Q1 in confident fashion, with growth at its highest since Q2 2010, showing that fears of a double dip recession were unfounded. Although some customers continue to seek more for less, consistent increases in activity alongside greater certainty over new business are positive signs for the year ahead.

Though the economy remains fragile, companies are responding to clients’ willingness to make firm business decisions, by hiring more staff and that the increase in new orders, crucial for sustained growth, continued to be outstripped by gains in overall activity during March.

David Young
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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide