GROWTH of the UK's dominant services sector accelerated sharply in July, to its fastest pace in any month since December 2006, a survey has revealed.
The survey, published yesterday by the Chartered Institute of Purchasing and Supply and financial information company Markit, followed positive reports last week from CIPS on UK manufacturing and construction activity in July and buoyed economists' hopes for third-quarter growth.
CIPS's headline business activity index for services jumped from 56.9 in June to 60.2 in July on a seasonally adjusted basis. This took it further above the level of 50 calculated by CIPS to separate expansion from contraction to signal the fastest growth in the UK service sector for more than six-and-a-half years. CIPS's services survey does not include retail.
CIPS calculated that a composite of its services, manufacturing and construction output indices for July pointed to the fastest monthly growth since comparable records began in January 1998.
Its latest services survey showed companies in this sector, overall, enjoyed the sharpest rise in new work since November 2006 in July.
And the pace of recruitment by the service sector last month was only marginally adrift of the near-six-year high recorded for June.
Paul Smith, senior economist at CIPS survey compiler Markit, said there had again been reports from companies that better weather had bolstered activity during July but said the service sector appeared to have "genuine momentum".
He observed that improved activity in the housing market, which had also bolstered construction, was also reported to be boosting the services sector.
UK services companies' overall confidence about their activity over the next 12 months was at its strongest in 15 months.
Mr Smith said: "Although an early call on one month's data, the forward-looking elements from the survey point to a further strengthening of GDP in Q3 as the UK heads towards 'escape velocity' and self-sustaining economic expansion."
But he added: "A full and real recovery for many people will be one that results in meaningful job creation, a strengthening in real wages and an associated improvement in living standards, which have been under substantial pressure in recent years. While there is a long way to go, July's survey provided some positive news on this front, with employment rising at a rate only a touch off June's near-six-year record and reports of higher salaries being paid."
Martin Beck, UK economist at consultancy Capital Economics, said: "With July's CIPS/Markit measure of services activity rising to a level unseen for six-and-a-half years, a recovery in the dominant part of the UK economy looks increasingly entrenched. While some temporary factors may have played a role in boosting activity, a turnaround in the economy's fortunes seems to be in train."
However, he added: "With GDP (gross domestic product) still massively below what its pre-crisis growth rate would have implied, even a marked pick-up in growth shouldn't disguise the fact that there is a lot of catching-up to do."
Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "This is a show-stopping survey that completes a very impressive hat-trick of improved purchasing managers surveys for July. It is particularly encouraging given the dominant role of the services sector. It accounts for 77.8% of total output."
He added: "Improving service sector activity drove the strengthening UK economic performance during the first half, and the robust purchasing managers' survey for July suggests that the services sector is on course to make an even larger contribution to GDP growth in the third quarter.
"With the... manufacturing and construction surveys also seeing improved performances in July, it is looking ever more probable that UK GDP growth in the third quarter will top the 0.6% quarter-on-quarter expansion achieved in the second quarter."
Ian Kernohan, economist at Royal London Asset Management, said: "An improvement on Q2's GDP (growth) figure now looks a distinct possibility, although so far we have very limited official data for the third quarter.
He added: "PMI surveys are now well into territory where, in the past, the MPC would be hiking rates, although, given the very weak recovery from recession over the past few years, they will be content to hold off until the economy is much closer to its potential level of output."
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