UK service sector growth hits 2014 high

Tuesday 06 May 2014 11.52
UK Markit/CIPS services purchasing managers' index rose to 58.7 in April from 57.6 in March
UK Markit/CIPS services purchasing managers' index rose to 58.7 in April from 57.6 in March

Britain's dominant services sector expanded in April at its fastest pace so far this year and companies hired aggressively, a survey showed today. 

The Markit/CIPS services purchasing managers' index (PMI) rose to 58.7 in April from 57.6 in March, far above the 50 threshold for growth. Economists in a Reuters poll had expected an unchanged reading. 

Britain's economy grew at its fastest annual pace in more than six years in the first quarter of this year. 

"The UK economic recovery shows no signs of running out of steam, and growth could even accelerate further in the second quarter," said Chris Williamson, chief economist at PMI compiler Markit.

"The April numbers point to the economy growing by at least 0.8% again in the second quarter," he added. 

Although most economists expect the rate of growth will cool down slightly for the rest of 2014, Britain is expected to outpace all the other Group of Seven economies, raising questions about how long the Bank of England can keep interest rates at a record low. 

A composite index combining PMIs for manufacturing and construction, plus the services sector, showed output across the economy rose to 59.4 in April from 58.2 in March, back up to its highest level since November. 

Companies in the private sector took on staff at the fastest rate in the survey's history, dating back to January 1998. 

The Bank of England holds a rate-setting meeting tomorrow and on Thursday. It is widely expected to start raising borrowing costs only next year as it allows Britain's recovery to build. 

"The strength of the PMI's output and employment readings suggest that the discussion among policymakers about when interest rates will need to start rising will heat up, especially when viewed alongside recent house price gains," Williamson said. 

Today's survey showed little sign of price pressures in the services sector, which accounts for more than three-quarters of Britain's economy and includes firms ranging from major banks to high street restaurants. 

Growth in new work slipped a bit but rising confidence in the outlook was not far off February's four-and-a-half-year peak, helping to prompt companies to ramp up employment by the most since last October, the survey showed.