Services sector boom fuels fresh talk of an early interest rate rise

 

Britain’s services industry grew last month at the fastest pace since November, raising the chance that the rapid economic recovery will continue for the rest of the year and potentially bringing forward a rise in interest rates.

The monthly Markit/CIPS purchasing managers index for the services sector beat economists’ expectations and contrasted with a mostly downbeat recent string of economic data.

A similar survey of manufacturing hit a one-year low last week, but the rebound in services took the composite PMI for the private sector as a whole to a three-month high.

This may encourage the Bank of England to rethink a prediction made in May that the economy would slow slightly in the second half of 2014.

The British central bank publishes new forecasts next week, and some economists said the data could prompt one or two policymakers to back a rate rise at this week’s policy meeting. The BoE will announce its rate decision tomorrow, although a breakdown of how policymakers voted will not be available until minutes of the meeting are published later in the month.

“The pick-up in the composite PMI somewhat increases the chances that the Monetary Policy Committee decides to raise interest rates before the end of the year, and may even produce a split interest rate vote (this week) for the first time since July 2011,” said Samuel Tombs at Capital Economics.

Expectations rates might rise this year got a boost in June when BoE Governor Mark Carney said markets had underpriced the risk of higher borrowing costs but later faded due to mixed recent data and more equivocal remarks on policy by the Bank.

Economists polled by Reuters last week did not expect rates to rise until the first three months of 2015.

Sterling rose and British Government bonds led eurozone debt lower yesterday after the services data, however, as traders bet again on an earlier BoE rate move.

July’s services PMI reading of 59.1 comfortably beat economists’ forecasts of a small rise to 57.9 from the 57.7 recorded in June. The composite PMI rose to a three-month high of 59.1 from 58.4 in June.

The equivalent survey in the eurozone also showed an increase in growth, though at a slower rate.

Chris Williamson, chief economist at Markit, which compiles the PMI, said the numbers were consistent with Britain’s economy continuing to grow at a quarterly rate of 0.8 per cent, well above its long-term average of 0.5 to 0.6 per cent.

The economy grew by 3.1 per cent in the year to July, extending a surprisingly strong recovery from a deep recession and years of stagnation caused by the 2008 financial crisis.

The National Institute of Economic and Social Research, a leading think tank, said Britain’s recovery was more entrenched and it expected the economy to grow 3.0 per cent this year, up from 2.9 per cent in its previous forecast.

Markit’s Williamson said the strong PMI did not imply the BoE should raise rates soon, with prices in the services sector barely rising. “An absence of inflationary pressures means there is still a strong case for any tightening of policy to be delayed until 2015,” Williamson said.

Strikingly low wage growth despite record employment is also widely seen staying the BoE’s hand.

Services growth was helped by new orders and investment and hiring slowed only slightly from June’s record high. Firms’ confidence about the future was down slightly at 71.2, an eight-month low.

Start your day with The Independent, sign up for daily news emails
Voices
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appeal
Arts and Entertainment
Strictly finalists Simon Webbe, Caroline Flack, Mark Wright and Frankie Bridge
tvLive: Simon Webbe, Caroline Flack, Mark Wright and Frankie Bridgeface-off in the final
Sport
Ched Evans in action for Sheffield United in 2012
footballRonnie Moore says 'he's served his time and the boy wants to play football'
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture