UK services growth at six-year high, PMI survey suggests

The UK’s services sector has expanded at its fastest pace since December 2006, a survey has indicated.

The Markit/CIPS Services Purchasing Managers’ Index (PMI) rose to 60.2 in July from 56.9 the month before, a stronger showing than economists had expected.

Any reading above 50 indicates growth.

The numbers complete a trio of positive PMI figures for July, after strong showings in both the construction and manufacturing sectors last week.

Markit said its UK All Sector PMI, which combined the three, was 59.48, the highest since its records began in January 1998.

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Analysis

image of Hugh Pym
Hugh Pym
Chief economics correspondent, BBC News
They are surveys rather than hard data. But the Purchasing Managers’ Indices (PMIs) are watched closely by market analysts as reliable forward looking indicators of activity in the UK economy.

And if the latest results prove well-founded, the UK is in for strong growth in the current second quarter of the year. The services sector accounts for three quarters of economic activity, so July’s strongest result since December 2006 bodes well for future expansion.

Economists have been busily upgrading economic growth forecasts for the UK. On Friday the National Institute of Economic and Social Research pushed up its estimate for 2013 and 2014.

But whether this contributes to a sustained fall in unemployment remains uncertain. And UK output, unlike that of some other leading economies, is still below where it was in 2008, before the recession.

Paul Smith, senior economist at Markit, said indications were that there would be a “further strengthening of GDP” in the third quarter of the year, “as the UK heads towards ‘escape velocity’ and self-sustaining economic expansion”.

‘Firmer footing’
The latest UK services figure contrasts with data from the eurozone services sector, which showed a contraction at 49.8.

“It appears that the much improved weather helped services activity in July and we doubt that this rate of expansion can be sustained,” said Howard Archer, chief European and UK economist for IHS Global Insight.

“Nevertheless, there does appear to be a marked underlying improvement in activity under way, with the UK economic recovery genuinely moving to a firmer footing.”

And Victoria Clarke, economist at Investec, said the latest UK PMI data had produced another set of “storming” figures.

“Coupled with the lead that we saw in the construction PMI and the pretty solid manufacturing PMI, all those indicators are suggesting the UK recovery is really gaining pace now,” she added.

PMI surveys are based on data from various private-sector firms, which supply information on factors such as output, new orders, stock levels, employment and prices.

Despite the upbeat UK figures the FTSE index of leading blue-chip stocks was virtually unchanged in early afternoon trade.