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U.K. Services Surge to Fastest in More Than Six Years

U.K. Services Surge to Fastest Growth in More Than Six Years
A waiter lays a table in a restaurant in London. Photographer: Chris Ratcliffe/Bloomberg

Aug. 5 (Bloomberg) -- U.K. services growth accelerated more than economists forecast last month to the fastest pace in more than six years, adding to evidence Britain’s economic recovery is gathering momentum.

A gauge of activity rose to 60.2 from 56.9 in June, the highest since December 2006, Markit Economics and the Chartered Institute of Purchasing and Supply said today in London. Economists forecast 57.4, according to the median of 30 estimates in a Bloomberg News survey. Readings above 50 indicate expansion. A separate report showed euro-area services shrank less than initially estimated.

Today’s report, the latest to suggest the economy continued to strengthen at the start of the third quarter, comes two days before Mark Carney is due to publish the Bank of England’s latest economic forecasts. He’ll also release a report on the implementation of forward guidance in the U.K. after the central bank left its quantitative-easing program on hold last week.

“The U.K. economy is gaining momentum and therefore there is little need for any further direct stimulus in the form of rate cuts or QE,” said James Knightley, an economist at ING Bank NV in London. “Instead, it is about maintaining the current accommodative monetary-policy environment to ensure the recovery continues. This means of course forward guidance.”

The pound extended its advance against the dollar after the report and traded at $1.5375 as of 10:29 a.m. London time, up 0.5 percent from Aug. 2.

Composite Index

Reports from Markit last week showed U.K. manufacturing growth accelerated more than economists forecast in July, while construction expanded the most in three years. Markit said a composite index of its three surveys is now at a record high.

Signs of a strengthening economy may benefit Prime Minister David Cameron’s Conservative Party, which is trailing Labour in polls. A YouGov Plc survey for the Sunday Times newspaper yesterday showed support for the Tories at 32 percent, with Labour at 38 percent. The next election is due to be held in May 2015.

The BOE kept its target for bond purchases at 375 billion pounds ($576 billion) last week and left its benchmark interest rate at 0.5 percent. Carney, who joined the BOE last month from the Bank of Canada, will publish the U.K. central bank’s quarterly Inflation Report at 10:30 a.m. on Aug. 7. In addition to new forecasts, the report will include a review of forward guidance after a request from the government on using the policy tool in the U.K.

‘Genuine Momentum’

Within services, sales rose last month at the strongest rate since November 2006, while confidence jumped to a 15-month high and payrolls increased, Markit said today.

“Although an early call on one month’s data, the forward-looking elements from the survey point to a further strengthening of GDP,” said Paul Smith, an economist at Markit in London. “The service sector appears to have genuine momentum with underlying economic conditions and business confidence rising.”

In the U.S., the biggest part of the economy probably also strengthened last month, economists said before a report today. The Institute for Supply Management’s non-manufacturing index will rise to 53.1 from June’s 52.2, according to the median forecast in a Bloomberg survey.

Markit’s services index for the euro region rose to 49.8 in July from 48.3 in June, exceeding an initial estimate of 49.6 on July 24, it said today. A composite index of both manufacturing and services rose to 50.5 from 48.7, topping the 50 mark for the first time since January 2012.

China’s economy is showing signs of stabilizing after slowing for two straight quarters, with official manufacturing and services indexes rising.

The non-manufacturing Purchasing Managers’ Index increased to 54.1 in July from 53.9, the first acceleration since March, government data showed Aug. 3, following last week’s unexpected gain in a manufacturing PMI. A services index from HSBC Holdings Plc and Markit was unchanged at 51.3, a separate report showed today.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

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

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