U.K. Services Index Hits Seven-Month High as Economy Strengthens

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U.K. Services Growth Hits Seven-Month High
An employee prepares a table ahead of a lunch sitting inside a restaurant in London. Photographer: Chris Ratcliffe/Bloomberg

U.K. services growth accelerated to a seven-month high in March as the broader economy gained momentum in the first three months of 2015.

Markit Economics said Tuesday its Purchasing Managers’ Index rose to 58.9 from 56.7 in February. Economists had forecast 57, according to the median estimate in a Bloomberg News survey. A reading above 50 indicates expansion.

The report, taken together with data last week on manufacturing and construction, suggests the economy will grow 0.7 percent in the first quarter after a 0.6 percent increase at the end of 2014, Markit said. Britain’s political parties are battling over claims to economic competency with one month to go before the general election.

“The U.K. economy moved up a gear in March,” Chris Williamson, chief economist at Markit, said in a statement. “Faster growth of new business and improved expectations of prospects for the year ahead also bode well for the upturn to retain strong momentum as we move through the spring.”

The pound extended gains versus the euro after the data were released, trading at 73.04 pence per euro as of 10:55 a.m. London time, up 0.5 percent on the day. Against the dollar, sterling was down 0.1 percent at $1.4868.

Services Survey

Markit’s services survey showed employment growth remaining close to a record high in March and “few signs” of inflation picking up, Williamson said. Its surveys last week showed manufacturing expanded at the fastest pace in eight months in March, while construction also grew.

With inflation at zero, economists forecast the Bank of England will leave its benchmark interest rate at 0.5 percent on Thursday. BOE officials have voted unanimously this year to maintain borrowing costs at record lows as they look through temporary price factors such as falling oil costs.

“The lack of inflationary pressures suggests the first hike remains some way off,” Williamson said.

While there was “a degree of uncertainty” among service companies ahead of the May 7 election, with polls suggesting no political party will win a majority, business expectations were at their strongest since May, Markit said. The rate of growth in new contracts accelerated to its fastest since September.

Today’s services data “provides further reassurance that the economic recovery is still on a fast track despite the uncertainty created by the upcoming general election,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “The further improvement in the future activity and new orders indices suggests that the near-term outlook is bright.”

Markit’s composite index for services, manufacturing and construction gained to 58.8 last month from 56.7 in February.

(An earlier version of this story was corrected to say first quarter in third paragraph.)

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