Growth in UK services sector at two-year high

Britain's service sector grew at the fastest rate in more than two years in June, a survey showed today, fuelling optimism on the economy and giving Mark Carney more good news in his first week as Bank of England governor.

In a sign that the upswing may be sustained, new orders in the service sector rose at the fastest rate since June 2007, while a broader survey of private sector activity pointed to solid economic growth in the second quarter.

Coming on the heels of robust manufacturing data out on Monday, the figures suggest Britain’s economy may need no more stimulus to reach what Mr Carney has termed “escape velocity”.

The Purchasing Managers’ Index for services, compiled by Markit and the Chartered Institute of Purchasing and Supply, leapt to 56.9 in June from 54.9 in May.

That was higher than any of the 26 economists polled by Reuters had predicted, and more than two points above the consensus forecast.

“With growth this strong it’s hard to see how any of the members of the Monetary Policy Committee could make a case for further quantitative easing,” said Chris Williamson, Markit’s chief economist.

Policymakers at Britain’s central bank start a two-day meeting on today, the first under Mr Carney.

A minority of the nine-strong committee has argued for more quantitative easing in recent months. Mr Carney - who gained a reputation for monetary activism when at the helm of the Bank of Canada - has been widely expected to back that view.

The details of today’s services sector data were unequivocally strong: The sharp rise in new business prompted the fastest rise in hiring since August 2007, business expectations hit their highest level in over a year, and outstanding business also rose at its fastest pace since August 2007, suggesting firms were struggling to keep pace with demand.

Markit said its composite activity index, which includes services, manufacturing and construction, pointed to British economic growth of at least 0.5 per cent in the second quarter.

Reuters