UK economy 'buoyant' as services sector grows at fastest rate in two years

Surging service sector workloads prompt biggest increase in new staff hires since before the financial crisis hit in 2007

Hopes of an economic recovery are growing as the UK's dominant services sector expanded at its fastest rate in more than two years, according to monthly data.

Service sector firms, which account for three-quarters of the economy, reported surging workloads in June, prompting the biggest increase in new staff hires since before the financial crisis hit in August 2007.

The purchasing managers' index soared to 56.9 in June, up from 54.9, its highest level for 27 months. A figure above 50 means growth, according to Markit, which compiles the survey.

The services sector is leading the UK economy out of recession, says the British Chambers of CommerceThe strong demand for services comes as Mark Carney, the new Bank of England governor, starts his first monetary policy committee meeting buoyed by a slew of positive economic data. This week saw confirmation that British manufacturers enjoyed their strongest growth for two years in June, while the construction sector grew for the second consecutive month.

The figures confirm that the UK continues to outperform the eurozone, where combined manufacturing and services output continues to fall. "The buoyant picture for June means the economy is on course to expand by at least 0.5% in the second quarter, with more growth to come," said Chris Williamson, Markit's chief economist.

"New orders and job creation across all sectors are now rising at the fastest rates for almost six years, led by the vast services economy, boding well for robust growth momentum to be sustained as we move into the second half of the year."

David Kern, chief economist at the British Chambers of Commerce, said the figures confirmed that services were leading the UK out of recession.

"I don't believe that the economy is booming, but the figures confirm the recovery is under way," he said. The recovery is widely spread, he added, although the service sector is performing better than other parts of the economy.

"It would be wrong to say we can relax now," he said, warning of risks from renewed problems in the eurozone, the fallout from the US Federal Reserve's decision to wind down financial stimulus, and in the UK, rising inflation and tight access to credit. "Many small firms are still finding it difficult in getting finance on acceptable terms; there is a bottleneck."

The surging demand for services has dampened expectations that the Bank of England will opt for more financial stimulus when it concludes a two-day monetary policy meeting on Thursday.

The data reinforces the view that the Bank will sit tight on quantitative easing, said Howard Archer, chief economist at IHS Global Insight. But he predicted the bank would not give up on QE and forecast an injection of £25bn into the economy in August. "This reflects our belief that Mark Carney is likely to be keen to build up escape velocity from extended economic weakness."

Article Source : http://www.guardian.co.uk

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