Services sector grows at fastest rate since 2006

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The UK’s dominant services sector grew at its fastest pace in almost seven years last month, adding to hopes that the economic recovery has extended into the third quarter.

Today’s Markit/Cips purchasing managers’ index (PMI) for the sector rose to a better-than-expected 60.5 in August, up from 60.2 the previous month and its highest level since December 2006.

Paul Smith, senior economist at Markit, said: “The UK service sector turned in another stellar performance in August, building on the growth momentum seen during July.

“Moreover, the sector’s recovery, which has been evident since the start of the year, has legs.”

The PMI shows new business growth is running at the strongest level for more than 16 years, while employment in the sector rose for the eighth month in a row.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “with the corresponding manufacturing and construction surveys seeing sharply improved performances in August, it is looking ever more probable that UK GDP growth in the third quarter will top the 0.7 per cent quarter-on-quarter expansion achieved in the second quarter.

“We currently expect GDP growth of 0.8 per cent quarter-on-quarter in the third quarter, and this could very well prove to be too conservative. We have lifted our GDP growth forecast for 2013 to 1.4 per cent.”