U.K. Services Employment Rises at Record PaceScott Hamilton
Employment at U.K. services companies rose by a record last month amid brightening prospects, helping the economy maintain its momentum at the end of the second quarter.
Markit Economics said the employment component of its Purchasing Managers’ Index rose to 58.8 from 56.2 in May. The headline measure for services, the biggest part of the economy, was at a three-month low of 57.7, down from 58.6 the previous month. That’s still above the 50 level that divides expansion from contraction.
The services index, along with construction and factory surveys this week, indicate the economy grew 0.8 percent in the second quarter, according to Markit. That would match the pace seen in the three months through March and push gross domestic product above its pre-crisis peak. The first official estimate for second-quarter GDP will be published on July 25.
The strengthening recovery and a rapid drop in unemployment have prompted speculation about when the Bank of England will raise its benchmark interest rate from a record low. The jobless rate has fallen from 7.8 percent in June last year to 6.6 percent in the three months through April.
While economists forecast the Monetary Policy Committee will keep the rate at 0.5 percent next week, Governor Mark Carney and other officials have indicated an increase could happen earlier than investors currently predict.
“The economy is firing on all cylinders,” said Chris Williamson, chief economist at Markit. “The persistent strength of the PMI surveys raises the likelihood of policy makers deciding that a pre-emptive rise in interest rates later this year is warranted, especially given the speed at which the labor market is improving.”
The BOE will announce its next policy decision at noon on July 10. Investors are betting it will raise the benchmark rate by February, Sonia derivatives contracts show. That compares with an expectation for May early last month.
Economists in a Bloomberg News survey had forecast that the services index would decline to 58.3 in June. The pound fell against the dollar after the data and was trading at $1.7147 at 10:28 a.m. London time, down 0.1 percent on the day.
The index remains “well above” its long-run average and is “consistent with continued above-trend economic growth,” Michael Saunders, an economist at Citigroup Inc. in London. “Job growth will continue to exceed the MPC’s forecasts.”
Saunders sees payrolls growth lowering the unemployment rate to about 6 percent at the end of this year and 5 percent at the end of 2015.
Markit’s report showed that new business at service companies rose the most in six months in June. Capacity “remained under pressure with backlogs rising at an accelerated rate,” it said.
Manufacturing growth unexpectedly accelerated last month, according to a Markit report on July 1. The factory index rose to 57.5 from 57 in May, which compared with forecasts for a reading of 56.8. Construction growth also quickened in June.