U.K. Services Growth Keeps Economy Booming as Hiring Strengthens

U.K. services grew faster than economists forecast in May and confidence about the outlook prompted companies to boost hiring.

Markit Economics said the economy “continued to boom” last month as its Purchasing Managers’ Index for the services industry came in at 58.6, exceeding the 58.2 median of 30 estimates in a Bloomberg News survey. That’s above the 50 level that divides expansion from contraction and compares with a reading of 58.7 in April.

Markit said the index, along with its construction and manufacturing gauges earlier this week, indicates Britain’s economy is on track to grow 0.8 percent this quarter, matching the pace of the first three months of the year. While a measure of new business at services firms eased last month, the index has pointed to growth for 17 months.

Bank of England policy makers begin their two-day meeting today amid improving data that raises the prospect of an increase in borrowing costs as soon as this year.

Markit’s services survey also showed an employment gauge rose to the joint highest level since May 1997 and wages rose. With some BOE officials indicating they may soon start to vote for interest-rate increases, that may further sway them toward the need for tighter policy.

“With every strong PMI reading, the more lively the discussion will become among the Bank of England’s Monetary Policy Committee that a pre-emptive early hike in interest rates is warranted,” said Chris Williamson, chief economist at Markit in London. “However, with inflationary pressures remaining subdued, the case for higher rates is by no means clear cut.”

Companies’ average costs increased at the fastest pace in four months in May, with survey respondents citing higher wages and utilities, Markit said. Output prices also rose, though the rate was “modest,” it said. U.K. inflation was at 1.8 percent in April, below the BOE’s 2 percent goal.

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