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U.K. Services Growth Accelerates to Fastest in Eight Months

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U.K. services growth unexpectedly accelerated in April, according to a report on the eve of the general election that may ease concerns about the economy losing momentum.

An index of services, the largest part of the economy, rose to 59.5, the highest in eight months, from 58.9 in March, Markit Economics Ltd. said on Wednesday in London. Economists had forecast a decline to 58.5, according to a Bloomberg survey.

The report suggests the economy is rebounding this quarter after growth slowed to 0.3 percent in the first three months of the year. While manufacturing and construction both weakened in April, according to Markit, it said the surveys signal “robust” momentum of 0.8 percent expansion.

“Fears of the economy slumping amid election jitters are allayed” by an upturn in services, said Chris Williamson, chief economist at Markit. “But there are warning lights flashing about the sustainability of growth, and any new government is faced with the challenge of boosting business confidence and reviving investment in particular.”

Doubts about the sustainability of the U.K. recovery stem from its lopsided nature, with economic growth relying increasingly on the services sector, according to Markit. That means British consumers are driving growth while investment spending has remained weak, partly due to uncertainty around the election, Markit said. Polls have the Conservatives, led by Prime Minister David Cameron, and Labour neck-and-neck before Thursday’s vote.

Outlook Cut

The National Institute of Economic and Social Research on Wednesday cut its forecast for 2015 growth to 2.5 percent from 2.9 percent and said that low productivity is the greatest threat to the economy.

Employment in services rose for a 28th month in April, Markit said. While business expectations fell from a 10-month high, they were still at their second-highest since September. The positive outlook was linked to confidence in the economic recovery.

The report also showed that prices charged fell at the fastest pace in more than three years, as companies responded to competition and lower fuel costs. With U.K. inflation at zero, economists forecast the Bank of England will leave its benchmark interest rate at 0.5 percent on Monday.

(Updates with Niesr forecast in sixth paragraph. For Markit PMI data on Bloomberg, click here.)
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