Services boost points to British economy achieving ‘escape velocity’

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The economy is approaching “escape velocity” after the latest survey snapshot of the dominant services sector pointed to the fastest rate of expansion in more than six years. The Markit/Cips Purchasing Managers Index for services shot up to 60.2 in July, up from 56.9 the previous month. Any figure above 50 signals growth.

The City had expected the survey to produce a figure of 57.2. The last time the survey reached was above 60 was December 2006, before the global financial crisis. The index has now been in positive territory for seven months in a row.

The most recent surveys for the construction and manufacturing sectors have also pointed to solid expansion of the economy, which grew by 0.6 per cent in the second quarter of the year according to the Office for National Statistics. The composite PMI Index, which takes into account all three sectors, is now at is highest level since the series began. “It does suggest that we are reaching escape velocity,” Ross Walker of the Royal Bank of Scotland said.

Paul Smith, Markit’s senior economist, said the surveys suggested faster growth in the third quarter of 2013. “The forward-looking elements from the survey point to a further strengthening of GDP in the third quarter as the UK heads towards ‘escape velocity’ and self-sustaining economic expansion” he said.

Markit/Cips said that services activity had been boosted last month by good weather and the pick-up in the housing market.

The latest survey also showed that firms’ business expansion plans had reached their highest level for  15 months. Services account for some 75 per cent of the UK’s economic output.