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Services growth more than makes up for other sectors

GROWTH of the UK's dominant services sector accelerated in July to its fastest pace for eight months as firms continued to add to their workforces amid a strong inflow of new business, a survey has shown.

The survey, published yesterday by the Chartered Institute of Purchasing and Supply, adds to signs that the UK economy has started the third quarter fairly strongly, having at last regained its pre-2008-09 recession level of output in the three months to June.

CIPS's headline business activity index for services rose from 57.7 in June to 59.1 in July on a seasonally-adjusted basis, rising even further above the level of 50 which separates expansion from contraction. Economists had forecast a July reading of 57.9.

Respondents cited the launch of new services, increased marketing and greater opportunities to tender for business as factors underpinning growth.

Surveys published in recent days by CIPS have shown a slowdown in rates of growth in UK manufacturing and construction in July, although the pace of expansion in these sectors remained significant. Employment in the construction sector grew in July at the fastest monthly pace since comparable records began in April 1997.

Within construction, growth in activity in the housebuilding sub-sector accelerated in July to its fastest pace since November 2003.

Chris Williamson, chief economist at CIPS survey compiler Markit, calculated that the services, manufacturing and construction surveys together showed UK business activity expanding in July at the fastest rate since April. He added that gross domestic product looked set to grow by 0.8 per cent again in the three months to September, assuming the surveys held current levels in coming months.

Although the pace of employment growth in UK services slowed in July, it remained strong, with 23 per cent of respondents recording a rise in staffing levels and only eight per cent indicating a fall.

New business growth for services companies eased marginally but remained robust, with this index dipping from 60.5 in June to a still-high 60.2 in July. Of survey respondents, 29 per cent recorded growth in new work and only 10 per cent indicated a decline.

Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "The very strong July purchasing managers' survey for the dominant services sector provides a strong antidote to some recent signs that robust UK growth could be losing a little momentum."

He added: "The services survey counters and outweighs the corresponding surveys showing manufacturing expansion easing back to a 12-month low in July, while [growth in] construction activity was little changed at a high level."

Confidence among UK services companies about activity levels in a year's time fell for a third consecutive month in July but remained relatively high.

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