UK growth hopes as service sector activity heats up

● News of the stronger- than- expected activity could prompt an interest rate rise

Britain’ s economy is likely to have gathered paced uring the spring after activity in the powerhouse services sector saw the fastest growth for eight months.

The closely- watched Markit/ Cips purchasing managers’ index( PM I) for the sector –which accounts for more than two-third soft he economy– showed a reading of 55.1 in June, up from 54 in May. Any reading above 50 denotes growth, but the latest result was ahead of economists’ expectations.

It marked the strongest rise in activity fort he services industry since October, with survey respondents saying there had been an upturn in demand for business and financial services.

The survey points to the UK economy growing by an estimated 0.4 per cent in the second quarter, up from 0.2 per cent in the opening three months of the year.

Howard Archer, chief economist at the EY Item Club think- tank, said the PMI data showed the economy was “warming up”.

He said :“A significantly improved survey for the dominant services sector adds to the feelgood factor after England actually winning a penalty shootout to reach the quarter- finals of the World Cup.

“The improved services survey complete san overall stronger set of purchasing managers’ surveys pointing to the economy warming up in June.”

He said the Bank of England was likely to be satisfied with the improved data, and that it supported the view that the monetary policy committee would vote to increase rates before the summer is out.

Although the central bank recently backed away from a rate hike after a sharp slowdown in GDP growth in the first quarter, it continues to expect the economy to bounce back in the second quarter.

The PM I services report comes after data showed that activity in the manufacturing sector edged up in June, while construction activity hit a seven- month high.

Strong demand in the services sector led to the highest increase in work backlogs for three years. Job creation in the sector remained modest, which the report said was due to problems recruiting staff, while some firms also cut jobs to save on costs. The PMI does not include the UK’S vast retail sector.

Jacob Deppe, head of trading at the online trading platform Infinox, said: “This isn’t just a return to form – Britain’s dominant service sector has roared back to life.

“Such solid growth in both output and orders cannot be dismissed as a mere normalisation after the sector’s in sip--id start to the year. It hints instead at real momentum.

“While a change in the way the UK’S GDP figures are published means the Bank of England’ s interest rate-setting grandees will have to base next month’ s decision on incomplete economic data, such stellar readings from both the service and construction sector PMI reports will bolster the case for a rise.”