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.

PROMOTED VIDEO
News
ebooksNow available in paperback
Sport
Diego Costa, Ross Barkley, Arsene Wenger, Brendan Rodgers, Alan Pardew and Christian Eriksen
footballRodgers is right to be looking over his shoulder, while something must be done about diving
News
i100
Life and Style
gaming
Arts and Entertainment
Carl Barat and Pete Dohrety in an image from the forthcoming Libertines short film
filmsPete Doherty and Carl Barat are busy working on songs for a third album
Arts and Entertainment
films
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

Ashdown Group: PR, Marketing & Events Executive - Southwark, London - £35,000

£30000 - £35000 per annum + benefits: Ashdown Group: PR Marketing & Events Exe...

Selby Jennings: C++ Developer – Hedge Fund – New York

$80000 - $110000 per annum, Benefits: Bonus and Employee Investment Scheme: Se...

Selby Jennings: Java Developer Enterprise Specialist –Paris,France

€30000 - €50000 per annum, Benefits: Competitive Bonus: Selby Jennings: Java D...

Selby Jennings: QA Engineer Lead – Hedge Fund – Chicago

$60000 - $90000 per annum, Benefits: Competitive Bonus and Employee Investment ...

Day In a Page

In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

Iran is shifting from pariah to possible future policeman of the Gulf

Robert Fisk on our crisis with Iran
The young are the new poor: A third of young people pushed into poverty

The young are the new poor

Sharp increase in the number of under-25s living in poverty
Greens on the march: ‘We could be on the edge of something very big’

Greens on the march

‘We could be on the edge of something very big’
Revealed: the case against Bill Cosby - through the stories of his accusers

Revealed: the case against Bill Cosby

Through the stories of his accusers
Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

The Meaning of Mongol

Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible