PMI: UK services sector growth at six-year high

New business at companies ranging from restaurants to law firms expanded at the sharpest rate for more than 16 years

Britain's powerhouse services sector accelerated at its fastest pace for more than six years in August to turbo-charge the recovery.

New business at companies ranging from restaurants to law firms expanded at the sharpest rate for more than 16 years, an influential survey of purchasing managers showed.

Booming growth in the services sector, which makes up more than three-quarters of the economy, followed upbeat surveys of Britain's building sites and factories to show the economy is firing on all cylinders.

A composite survey combining the three main sectors hit a record high in August, smashing another record set in July.

The closely-watched Markit/CIPS services purchasing managers' index (PMI) recorded activity levels of 60.5 in August, well above the 50 mark which separates growth from contraction and building on the 60.2 level in July.

The composite PMI hit a level of 60.7 in August - the strongest level since the combined survey began in 1998 and above July's 59.5 level.

New business at services firms increased at the sharpest rate since May 1997, while the headline activity rate hit its highest level since December 2006. It was the eighth consecutive month of growth in activity and new orders.

BNP Paribas UK economist David Tinsley labelled the performance "super, smashing, great" as the reading beat City hopes for a 59.5 reading.

He pointed out there have only been 11 previous months where the index has topped 60 - with the last back-to-back readings seen in 1996/97 when the economy was growing at almost 4%.

"The UK services PMI rounds off a great week for the economy from these indicators," he said. "Whether this performance is sustainable in the medium term is debatable, but for now the improvement is real."

The data ignited hopes that third-quarter growth can beat expansion of 0.7% in the April to June quarter - with Markit suggesting growth of as much as 1.3%.

Paul Smith, senior economist at Markit, said it was another "stellar" performance from services firms.

Companies reported rising market confidence which helped turn inquiries into hard orders. Britain's housing market recovery also helped drive volumes, Markit said.

"The sector's recovery, which has been evident since the start of the year, has legs," said Mr Smith.

"With sister surveys for construction and manufacturing also signalling the continuation of substantial growth, the UK is well on course to register a strengthening of GDP growth over the third quarter.

"If activity and sales can maintain their current growth velocities, then higher payrolls and, just as important for many workers, increased wages, should hopefully follow suit."

Employment stagnated in August, partly because companies were struggling to replace leavers. Price inflation grew at its slowest pace since May, and output charges rose modestly for the third consecutive month.

More than 50% of firms surveyed forecast business expansion over the coming year.

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, said: "Optimism abounds as the UK services sector, combined with manufacturing and construction, completes a glowing picture for the UK economy."

PA