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U.K. Services Grow Most in 14 Months on Olympics, Auto Sales

Sept. 28 (Bloomberg) -- Britain’s services industry expanded at its fastest pace for more than a year in July, adding to evidence that the economy returned to growth in the third quarter.

Services, which account for about three quarters of the economy, grew 1.1 from June, when the sector fell 1.5 percent, the Office for National Statistics said in London today. It was the biggest increase since May 2011.

Activity rebounded in July after being hampered the previous month by an extra public holiday for Queen Elizabeth II’s Diamond Jubilee. Output rose across the sector, with a jump in auto sales driving a 1.8 percent gain in distribution, hotels and restaurants. There was also a boost from Olympic ticket sales.

“The fact that the dominant services activity saw a decent rebound in July from June’s distorted drop is a significant boost to third quarter growth hopes,” said Howard Archer, an economist at IHS Global Insight in London. “While the latest news on the services sector is largely encouraging, they still face challenging conditions that are likely to limit their activity in the near term at least.”

The figures come after data yesterday showed the economy shrank less than previously thought in the second quarter and personal incomes rose at the fastest pace for three years.

The pound was lower against the dollar after the report at $1.6220 as of 9:58 a.m. in London, down 0.1 percent on the day.

Olympics Boost

Olympic ticket sales boosted the arts and recreation sector, which gained 3.7 percent from June, the statistics office said.

In a separate release, the statistics office said output per worker fell 1.3 percent in the second quarter from the first. Unit wage costs, or the amount spent on wages and salaries to produce each unit of output, rose 2 percent, the most for three years. The market sector, which mainly consists of private firms, saw productivity fall 1.5 percent to its lowest level since 2005.

The figures will deepen what analysts term Britain’s “productivity puzzle” as the economy has continued to create jobs in the face of the recession.

The ONS also said Northern Rock Asset Management and Bradford and Bingley Plc had been reclassified as central government bodies, as of January and July 2010 respectively.

The change has increased U.K. general gross government debt and lowered the deficit, although there will be no significant impact on broader measures of the public finances as the two institutions were already included in the public sector as government-controlled financial institutions, the ONS said. They will be fully incorporated in the public sector finances and national accounts reports from early 2013.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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