UK sees fastest services growth since late 2006

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The UK service sector expanded at its quickest pace for over six years in July 2013 as market conditions continued to strengthen.

According to the Markit/Chartered Institute of Purchasing & Supply UK Services Purchasing Managers’ Index, the headline Business Activity Index climbed to 60.2 points in July, compared with 56.9 in June and significantly above the 50 points that mark an expansion in activity.

Furthermore, sales volumes rose at their strongest rate since November 2006 while employment in the service sector continued to rise on the back of stronger confidence.

Additionally, with the rate of inflation being recorded as the strongest it has been in two years, better demand and improved market conditions helped to support higher output charges.

With the above resulting in capacity issues, it is now expected that employers will raise wages and take on more staff to meet demand. With backlogs rising four months in a row, the report suggests this will cause for a further rise in employment.

CIPS chief executive David Noble says: “Combined with the manufacturing and construction figures, this is the clearest sign yet that the UK economy is experiencing a broad based economic recovery and has the momentum to deliver continued growth.

“The steep rise in new business and the sharpest rise in backlogs of work since 2010 have put some pressure on capacity, giving firms the conviction to take on more staff and increase wages, which have been stagnant for a long time. Taken together, these could signal a significant month in the turnaround of the fortunes of the UK plc.”

Capital Economics UK economist Martin Beck agrees that this data supports the view of a UK economic recovery but points out there is still a long way to go.

“While some temporary factors may have played a role in boosting activity, a turnaround in the economy’s fortunes seems to be in train,” he says.

“But we still think it is necessary to ensure the recovery is not scuppered by a premature risk in market interest rates. And with GDP still massively below what its pre-crisis growth rate would have implied, even a marked pick-up in growth should not disguise the fact that there is a lot of catching-up to do.”