THE powerhouse UK services sector rose at its fastest pace in 27 months, giving further weight to indications the economic recovery is gaining momentum.
The Purchasing Managers' Index (PMI), compiled by Markit and the Chartered Institute of Purchasing and Supply (CIPS), for services increased to 56.9 in June.
That was up from the 54.9 recorded in May and the best seen since March 2011 in a survey where a reading above 50 shows expansion.
New business reached its best level in six years, which led to a rise in the backlog of work resulting in company's taking on staff at the quickest pace since August 2007.
The improvements in the sector also saw confidence reaching the highest level in 14 months.
David Noble, chief executive at CIPS, said: "The UK services sector finished off Q2 with a stellar performance in June, giving the clearest signal yet that the worst days of the financial crisis are behind us."
There were some notes of caution in the PMI with margins remaining under pressure and companies feeling unable to pass on higher costs to customers due to strong competition.
The services sector plays a dominant role in the UK economy accounting for more than three quarters of output. The generally positive tone of the services PMI – coupled with similarly upbeat reports on the construction and manufacturing sectors – led some economists to up second quarter GDP growth predictions from 0.5% to 0.6%.
Katie Evans, from the Centre for Economics and Business Research, said: "With service sectors making up such a large part of the economy, this should add to good news for other sectors, providing an engine to drive the UK's recovery forward."
That view was echoed by Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM club, who said the data confirmed the UK was "well on the road to recovery" and reduced the need for further quantitative easing.
He added: "A pessimist could say that we've been here before, most notably in 2011 when the recovery soon fizzled out.
"But this time it looks different, with the surveys also reporting much stronger order books, both at home and abroad, which suggests that this time the pick-up in activity has genuine legs."
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