The services sector in the UK bounced back after four months of contraction, posting a growth for the month of March, driven by optimism surrounding the economy’s plan for easing its lockdowns soon. According to data released by IHS Markit, UK’s services PMI surged to 56.3 in March, the highest reading seen since seven months, and following a reading of 49.5 in February.

The surge in the headline PMI figure was driven by an improvement in activity, new orders as well as employment across UK’s services sector. Meanwhile, the optimistic outlook among companies in this sector soared to the highest levels seen in over 14 years as businesses look forward to the UK emerging out of lockdown and resuming economic activity.

However, the improvement in the services PMI also reveals a possibility of an increase in inflation in the near future, with input prices surging to the highest level in almost three years. The pent-up demand among consumers as lockdowns and restrictions ease is contributing to the sudden increase in input prices as suppliers find it challenging to cater to the higher demand levels.

While domestic demand is showing signs of rebounding, external demand for UK’s services remains under pressure as its trading partners, especially Europe, continue to remain in the grip of lockdowns and fresh waves of infections. In addition, challenges related to Brexit are also keeping demand from EU businesses lower and impacting the overall external demand in this sector.