Strong UK services data 'points to fastest economic growth in 15 years'

Britain's economy may have expanded at its fastest pace in 15 years over the past three months, analysts suggested on Thursday, after an upbeat survey of the key services sector suggested it is growing at a healthy clip.

The monthly Purchasing Managers' Index for services declined slightly, to 60.3 in September, from 60.5 in August, but the average score over the quarter suggested the fastest growth in services output since mid-1997.

Chris Williamson, chief economist of data provider Markit, which compiles the survey, said taken together with similarly strong readings for activity in the much smaller construction and manufacturing sectors, this latest survey signals even stronger growth in GDP than the 0.7% recorded between April and June.

"Historical comparisons of the PMI with official GDP data suggest that the economy grew by 1.2% in the three months to September. This was a marked gathering in the rate of expansion compared with the 0.7% increase seen in the second quarter."

Michael Tinsley, of BNP Paribas, added that in the second quarter of 1997, the last time the combined PMI surveys were this strong, GDP growth was 1.2% – well above Britain's long-term average – and averaged 1% every quarter over the following year.

"It remains to be seen whether the UK can repeat anything like that feat, and we would prudently expect some cooling in the data in coming quarters. But for now there is no mistake the economy is growing jolly fast," he said.

Firms reported that incoming new business had continued to be strong, they were hiring new staff, and expectations of future activity were also positive – a marked turnaround from the start of 2013, when many economists feared that the UK may have dipped into a renewed recession.

Howard Archer, of consultancy IHS Global Insight, described the latest survey as "very good news" – though he warned that it could force the Bank of England to take earlier action on interest rates than it currently expects. Under new governor Mark Carney's policy of "forward guidance", the Bank's monetary policy committee has pledged not to raise interest rates until the unemployment rate falls at least to 7%, provided inflation does not get out of control. The committee expects that not to happen for up to three years.

But many City analysts are betting that borrowing costs will have to rise sooner, as the economic recovery gathers pace. The first estimate of GDP growth for the third quarter of 2013 will be published later this month.

Earlier on Thursday, PMI surveys for the euro area suggested that the 17-member zone continued to clamber out of recession in the third quarter.

The services index jumped to a 27-month high of 52.2 – above the 50 mark that divides expansion from contraction. German activity expanded for the fourth successive month; while the French survey suggested the country's services sector scored its first expansion in more than a year.

The eurozone economy expanded by 0.3% in the second quarter of the year, marking the end of a gruelling 18-month downturn; but several member-countries, including Spain and Italy, and bailed-out Greece and Cyprus, remain in recession.

Powered by article was written by Heather Stewart, for on Thursday 3rd October 2013 11.17 Europe/London © Guardian News and Media Limited 2010


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