Data shows surge in service sector output

New figures show that Britain's service sector has boosted the economy by growing at its fastest pace for more than two years in June

Mark Carney, governor of the Bank of England
Mark Carney, governor of the Bank of England

Britain's powerhouse service sector steamed ahead at its fastest pace for more than two years in June, completing a hat-trick of positive updates on the economy, figures showed.

The data adds to improving pictures in construction and manufacturing and should ease any pressure on new Bank of England governor Mark Carney to take further action to boost growth.

The measure of output in services rose to 56.9, up strongly from 54.9 in May and well above the 50 level which separates expansion from contraction, according to the closely-watched Markit/CIPS purchasing managers’ index.

It was the highest level since March 2011 amid the strongest gain in new business in six years - an increase which saw backlogs of work rise and companies take on additional staff at the greatest rate since August 2007.

Some companies in the sector – which represents three quarters of the UK economy – were also recruiting in anticipation of future growth, with predictions for an upturn in business over the coming months.

Confidence was at its highest in more than a year, although profit margins remained under pressure amid strong competition.

The figures mean growth has now been recorded for six successive periods in the sector. The main driver was a rise in sales volumes, while better weather also helped.

Chris Williamson, chief economist at Markit, said: “Growth in services and manufacturing is now the strongest for just over two years, while the construction sector is enjoying the fastest pace of expansion for over a year.”

He added the figures meant the economy was on course for a 0.5% upturn in GDP for the second quarter and suggested growth would be sustained.

Mr Williamson said it made it difficult to see how the bank’s Monetary Policy Committee could make a case for pumping billions more into the economy through quantitative easing (QE).

David Noble, chief executive of the Chartered Institute for Purchasing and Supply, said: “The UK services sector finished off Q2 with a stellar performance in June, giving the clearest signal yet the worst days of the financial crisis are behind us.”

Mr Noble said fierce competition and wider economic difficulties continued to cause concern, but added: “Barring any major changes to the global economy, we can be optimistic about sustaining this growth.”

Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM club, said the data confirmed the UK was “well on the road to recovery”.

Martin Beck of Capital Economics said: “Evidence that a recovery in the economy may be taking root is becoming more telling. The recovery faces some headwinds, but things seem to be moving in the right direction.”

The recovery faces some headwinds, but things seem to be moving in the right direction

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