ECB expected to keep interest rates on hold

The European Central Bank is widely expected to keep interest rates at a record low of 0.5 per cent when its governing council meets today, amid tentative signs of economic improvement in the euro zone.

Nonetheless, ECB president Mario Draghi will face questions about future strategy in light of a rise in money market rates over the summer and expectations of a possible tapering-off of the Federal Reserve's bond-buying programme.

Figures released yesterday confirmed the euro zone economy emerged from recession in the second quarter of this year, in line with last month’s estimate, with gross domestic product rising 0.3 per cent between April and June. The closely watched Markit euro zone composite purchasing managers’ index (PMI) rose to 51.5 last month from 50.5 in July – the highest level in two years.

In Ireland, economic data confirmed unemployment fell again last month while further numbers showed the country's services sector grew at its fastest rate in six years, underpinning hopes the economy may be finally turning a corner.

Unemployment benefit
For the fourth month in a row, the number of people claiming unemployment benefit in the Republic fell.

The latest live register figures indicated the numbers signing on the dole dropped by 3,400 in August, giving rise to a standardised unemployment rate of 13.4 per cent, down from 13.5 per cent in July.

On an unadjusted basis, there were 435,280 people on the register last month, representing an annual decrease of 20,976 or 4.6 per cent.

The figures suggested 45 per cent of those on the register have been out of work for at least one year, the lowest rate since mid-2009.

Minister for Social Protection Joan Burton said the figures provided concrete proof the Government "was making progress in getting people back to work".

However, the Irish National Organisation of the Unemployed claimed the numbers masked the high levels of emigration and the limited period people were able to sign on.

Separate figures from the Central Statistics Office on “job churning”, suggested the number of positions created during 2011 outpaced the number of job losses for the first time since 2007.

The positive employment data coincided with figures suggesting the country's services sector – which accounts for about 70 per cent of the economy – grew at its fastest rate in six years last month.

Services sector
The latest Investec purchasing managers' index (PMI) of services sector activity rose to 61.6 in August from 57.6 the previous month.

This was the highest reading recorded since February 2007, and comfortably above the all-important 50 mark, which denotes expansion in activity.

“The principal cause of rising activity in August was the spell of unusually good weather in Ireland and the consequent boost to the tourism sector,” said Investec’s chief economist Philip O’Sullivan.

Investec’s sub-index for new business recorded it fastest rate of growth since March 2007, with respondents citing “increased new business from both domestic and export markets”.