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Better UK figures on services, houses

UK house prices - 1.1% rise in July
UK house prices - 1.1% rise in July

Britain's services sector unexpectedly surged in July to grow at its fastest pace in more than a year, a survey shows today, igniting hopes the economy may have started growing again in the third quarter.

The news came as separate figures showed that UK house prices rose for the second time in three months in July.

The headline business activity index of the CIPS/Markit Purchasing Managers' services survey rose to 53.2 in July from 51.6 in June, the highest since February 2008 and beating forecasts for a more modest expansion to 51.8.

The index has risen more than 13 points from its record low in November, the most marked improvement in the survey's 13-year history, Markit said.

The survey's new business index rose to 52.7 from 49.7, the highest since March 2008, as confidence in the outlook for the economy encouraged firms improved.

However, firms were still operating below capacity and continued to shed jobs to try to curb costs as margins came under pressure from rising input prices.

Business expectations eased from a 20-month peak hit in June but remained firmly in positive territory, boosted by growing demand and signs the UK was close to coming out of recession, Markit said.

The equivalent survey on manufacturing earlier this week showed activity in that sector grew in July for the first time since last March. Together, the reports suggest Britain may now be emerging from recession after the second quarter's unexpectedly sharp 0.8% fall.

Separate data today showed that industrial and manufacturing output both unexpectedly rose in June, although analysts said that alone was unlikely to lead to an upward revision to second-quarter GDP data.

This latest data has reinforced expectations the Bank of England would stop buying assets to support the economy. UK central bank policymakers begin their two-day meeting today to debate whether to expand their £125 billion sterling asset purchase programme which ended last week or take time out to gauge the effectiveness of the policy.

Figures signal UK housing improvement

UK house prices rose by 1.1% during July in a further sign that conditions in the property market are improving, figures from Halifax showed today.

The average increase was the second rise in the past three months and leaves prices in the three months to July 0.8% higher than in the previous quarter. So far this year, house prices have fallen by less than 1%.

'Demand for homes has risen, albeit from a very low base, since the start of the year, driven by improvements in affordability and low interest rates,' commented Halifax housing economist Martin Ellis.

Halifax said prices were now 12.1% lower on a year earlier, with an average price of £159,623 sterling.

The figures extend the recent positive trend after building society Nationwide reported that the average value of a UK home rose by 1.3% in July. And the number of mortgages approved for house purchase has also risen for five months in a row to the highest level for more than a year.

As well as stronger demand, the market has been supported by a record low Bank of England base rate of 0.5%. This is expected to remain unchanged when the Bank's monetary policy committee announces the outcome of its monthly meeting tomorrow.

Surprise rise in UK production

Separate figures showed that British industrial output rose unexpectedly in June and at its fastest pace since October 2007, helped by a surge in car production.

The Office for National Statistics said industrial production rose 0.5% on the month in June after a 0.7% in May, well above analysts' forecasts. But industrial output remains 11.1% below last year's levels. The ONS said the monthly rise would not be enough to materially alter Britain's second quarter GDP data, which came in worse than expected last month with a fall of 0.8% on the quarter.

Manufacturing output also rose unexpectedly in June, up 0.4% on the month and the strongest rise since January 2008. Within that, motor vehicle production surged 13.5% on the month - its biggest rise since January 2007. But production in the three months to June was still 42.8% lower than the same period a year ago.