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UK: Services lift raises rates pressure

PUBLISHED: 16:00 05 August 2014

Group of people in queue at bank. Growth in the services sector has slowed, according to the CBI.

Group of people in queue at bank. Growth in the services sector has slowed, according to the CBI.

(c) Ryan McVay

Another strong performance by Britain’s powerful services sector has stepped up the pressure on policymakers to consider a rise in interest rates.

The Markit/CIPS services purchasing managers’ index (PMI) registered 59.1 last month, up from 57.7 in June and well above the measure of 50 which indicates growth.

Economists said the highest reading for the sector since November indicated that GDP growth will at least reach 0.8% in the third quarter of this year.

It is also expected to increase the chances that the Bank of England’s monetary policy committee (MPC) will decide to raise interest rates before the end of the year.

Policymakers are meeting this week amid speculation that their discussions may produce a split vote for the first time since July 2011.

Markit chief economist Chris Williamson said: “The sustained strength of growth will add to calls for interest rates to start rising later this year.

“However, with prices charged for services rising only very modestly again in July, an absence of inflationary pressures means there is still a strong case for any tightening of policy to be delayed until 2015.”

Today’s report follows a strong construction sector reading, although manufacturing figures last week were disappointing as firms struggled with the strong pound and weaker demand in key export markets.

The services report found that more staff were recruited to help firms keep on top of current workloads and in anticipation of further growth in the coming months.

Taken across all three CIPS surveys, the rate of job creation eased from June’s all-time high but remained consistent, with approximately 100,000 jobs being created by the private sector in July.

Mr Williamson said this meant that the unemployment rate should fall below 6% by the end of the year, compared with 6.5% in the three months to May.

The services sector, which covers everything from social work to banking, accounts for about three-quarters of the country’s economic activity.

Backlogs of work in the sector rose at a marked and accelerated pace during July, with the degree of growth the strongest since January.

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