Welcome surprise for economy from services data

There was a ray of light for the battered UK economy yesterday as figures showed that expansion in the all-important services sector accelerated in July.

The Market/CIPS survey of purchasing managers in the services industry rose to a high of 55.4 in July. Most forecasters had expected to see a moderate slowdown from June's figure of 53.9. Any figure above 50 indicates expansion.

Howard Archer, chief UK & European economist at IHS Global Insight, also noted some welcome news for the Bank of England in the numbers, as the Monetary Policy Committee makes its interest rate decision today.

He pointed out that the figures show the prices charged byservices companies rose only marginally – at the slowest rate since last September – while input prices moderated to a seven-month low.

The consensus view is that the Bank will keep rates on hold, but there will be no expansion of the "quantitative easing" programme to stimulate the economy.

"The services purchasing managers survey provides a verywelcome and important upside surprise," Mr Archer said. "Thereported pick-up in activity in July is a significant boost to third-quarter growth prospects."

The IHS weighted composite index for both the purchasing managers' services index and those produced for manufacturing and construction rose to a four-month high of 54.2 in July from a 2011-low of 53.5 in both June and May.

Vicky Redwood, senior economist at Capital Economics, added: "The improvement comes as a bit of relief after the recent run of poor data on the economy... [but] the survey does not alter the picture of a pretty sluggish recovery."