Central bank policymakers take heart from service sector surge

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PRESSURE on Bank of England policymakers to restart the money-printing presses has eased after Britain’s dominant services sector racked up its strongest growth since last summer’s Olympics.

Services account for almost three-quarters of the nation’s economic output and helped pull the UK away from “triple-dip” recession territory in the first quarter of the year.

News of the continued growth in services, coupled with robust data from the manufacturing and construction sectors earlier this week, offer hope that the second quarter of 2013 will maintain the positive trend.

The latest purchasing managers’ index for the services sector rose to 52.9 in April, its highest reading since August and the fourth consecutive monthly rise. Economists expected the index to stay at March’s level of 52.4.

The latest rise was supported by the strongest upturn in new work since May 2012, with sales also rising sharply. New contracts, better weather and increased foreign demand also buoyed the sector.

Markit’s combined index of services, manufacturing and construction rose for a fourth consecutive month to 52.1, also the highest level since August.

Chris Williamson, chief economist at survey compiler Markit, said: “A broad-based improvement is becoming evident in the UK economy, greatly reducing the likelihood of the Bank of England seeing any need to increase its asset purchases in the immediate future.”

The Bank’s monetary policy committee (MPC) meets next week and most analysts believe there will now be no further expansion in quantitative easing (QE), for the time being. Business leaders said the MPC should resist any pressure to boost QE.

David Kern, chief economist at the British Chambers of Commerce, said: “In our view adding to QE would provide only marginal benefits for the UK economy, while increasing risks of higher inflation and the further weakening of sterling.

“The MPC should… make better use of the existing QE programme to support a revival of business lending.”