Services' growth points to rate rise

Britain's services sector posted its strongest growth for 15 months in May, according to the latest survey to point to a strong revival in the economy.

The report, from the Chartered Institute of Purchasing Managers (CIPS), will add to the dilemma the Bank of England faces over whether to concentrate on weak official figures or strong survey evidence.

"This sits very oddly with official growth estimates, which continue to show a very weak service sector performance," Ross Walker, at Royal Bank of Scotland, said. "I don't think the Bank is yet confident enough that the survey evidence will translate into real growth."

The Monetary Policy Committee left rates on hold on Thursday, which analysts said showed it was more concerned about weak growth than booming house prices. Economists believe further strong surveys and a strong rebound in manufacturing in figures next week could nudge the MPC's elbow. George Buckley at Deutsche Bank said: "It's still contentious whether they will move rates up in July or August although given these figures you certainly can't rule out a July rate hike."

The CIPS survey also contained signs the recovery in services, which grew by just 0.2 per cent in the first quarter, was not yet fully entrenched. Incoming new business fell, outstanding business remained unchanged and business expectations fell sharply. Employment levels failed to rise for an eighth month.

A separate survey showed an overall 2 per cent fall in the number of visitors to shopping centres during the Golden Jubilee holiday compared with the 2002 Easter bank holiday in March.

David Smyth, marketing manager at FootFall, which carried out the survey of 75 outlets, said: "The country appeared to be glued to its TV sets watching the Jubilee celebrations or having street parties. Supermarkets were the winners, with demand for drink, food and hangover-related products soaring."