Service sector figures add to recovery momentum

Hopes that the economic recovery is gathering pace have been boosted by figures showing the strongest service sector growth in six years.

The recent good weather has helped to encourage consumers to hit the shop. Picture: Jane Barlow

The latest purchasing managers’ index (PMI) from Markit and Cips climbed to its highest reading since December 2006 during July, posting a score of 60.2, up from 56.9 in June.

Readings above the 50 mark that separates expansion from contraction have now been recorded for seven months in a row, with growth accelerating continuously throughout the period.

Paul Smith, senior economist at Markit, said that following equally positive numbers from construction and manufacturing surveys, the service sector data showed the recovery was becoming increasingly broad-based and was gaining traction.

“While there were again reports that the better weather bolstered activity during July, the service sector appears to have genuine momentum with underlying economic conditions and business confidence rising,” he said. “Although an early call on one month’s data, the forward-looking elements from the survey point to a further strengthening of GDP in the third quarter as the UK heads towards ‘escape velocity’ and self-sustaining economic expansion.”

Economic output has improved steadily since the start of the year, when a third post-crisis recession was feared. Growth doubled from 0.3 per cent in the first quarter to 0.6 over the three months to June.

Economists initially believed the second quarter figures, published last month, overstated the strength of the recovery. But the latest PMI data persuaded some that momentum can be maintained.

Howard Archer, chief UK economist at IHS Global Insight, lifted his growth forecast for the full year from 1.1 to 1.3 per cent yesterday, saying the economy should add at least 0.7 per cent in the current quarter alone.