U.K. Services Strengthened More Than Forecast in June

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U.K. services growth accelerated more than economists forecast in June, suggesting a strengthening recovery that remains overly reliant on domestic demand.

An index of services, the largest part of the economy, jumped to 58.5 from 56.5 in May, Markit Economics said on Friday, beating the 57.5 forecast of economists in a Bloomberg survey. The report, along with Markit’s factory and construction data, suggests the economy grew 0.5 percent in the second quarter after a 0.4 percent increase at the start of the year.

The report gives Bank of England policy makers plenty to digest as they prepare for their monthly meeting next week. While signs of strength are welcome, buoyant services -- after a manufacturing gauge fell to a two-year low last month -- reinforce the view of a lopsided recovery.

“Growth is looking increasingly unbalanced,” said Chris Williamson, Markit’s London-based chief economist. The services rebound is “welcome news, but policy makers will want to see further improvements in the data, including signs of a sustainable upturn in pay growth, before feeling comfortable that the U.K. economy is ready for higher interest rates.”

The pound extended its advance against the dollar immediately after the report before giving up some of the gain. It was up 0.1 percent at $1.5625 as of 9:32 a.m. in London.

While Markit’s index of new business signalled a 30th month of growth in June, it slipped to 57.2 from 57.4. Employment growth also slowed.

Williamson said continued U.K. economic acceleration is “by no means assured.” The escalating Greek crisis -- highlighted as a key threat to the U.K. by BOE Governor Mark Carney this week -- “has the potential to destabilize economic growth,” he said.

(Updates with pound in fifth paragraph.)
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