Belfast Telegraph

Sustained growth in services sector a good omen

By Roger Baird

The services sector grew steadily in June, adding to the recent batch of strong data pointing to a growing UK economy in the first half of the year.

The Markit/CIPS services purchasing managers' index (PMI) registered 57.7, down from May's reading of 58.6 but still well above the measure of 50 which indicates growth.

The survey said new business volumes saw their sharpest rise for six months, which prompted hiring in the sector to grow at a record pace.

The services sector, which covers everything from social work to banking, accounts for about three-quarters of the country's economic activity.

The survey also reported that wage costs, insurance and sub-contractor costs were increasing in the sector, with employers only able to pass "a marginal" part of this increase on to customers.

The services sector data comes on the back of strong construction and manufacturing figures published earlier this week suggesting the economy strengthened in the first six months of the year.

Markit chief economist Chris Williamson pointed to UK GDP growth of 0.8% in the second quarter, building on economic growth of 0.8% in the first three months of the year.

Mr Williamson added: "The persistent strength of the PMI surveys raises the likelihood of policymakers deciding that a pre-emptive rise in interest rates later this year is warranted, especially given the speed at which the labour market is improving."

Mr Williamson said an interest rate rise was more likely to occur later this year rather than in 2015.

The Bank of England has given mixed signals over the last year about whether a rise in interest rates would be pegged to features such as unemployment, spare capacity in the economy or a rise in average wages.

This has led economists to speculate whether a first rate rise, from its historically low 0.5% base, is 18 months away or could come as early as the end of this year.

Last week Treasury committee member Pat McFadden accused Bank of England governor Mark Carney of being an "unreliable boyfriend" because the various signals he has given about the timing of an interest rate rise.

Howard Archer, chief UK and European economist at IHS Global Insight, highlighted the trend of rising wages in the services survey.

Belfast Telegraph