Services sector enjoys post-election bounce

Britain’s dominant services sector enjoyed a marked pick-up in activity last month, following a temporary lull in May linked to the general election.

The latest purchasing managers’ index (PMI) from Markit and the Chartered Institute of Procurement & Supply (Cips) showed a reading of 58.5 for June, well above the 50 level that separates growth from contraction and up from the five-month low of 56.5 seen the previous month.

Chris Williamson, chief economist at Markit, said: “While uncertainty caused by the Greek debt crisis rules out any imminent hike in interest rates, the post-election rebound in service sector business activity adds to the likelihood of the Bank of England starting to nudge rates higher later this year.

“The survey data are indicating an acceleration of economic growth to 0.5 per cent in the second quarter, up from 0.4 per cent in the first three months of the year.”

However, Howard Archer, chief UK and European economist at IHS Global Insight, said the Bank of England was set to keep interest rates at their record low of 0.5 per cent its monetary policy committee (MPC) concludes its meeting on Thursday.

“It would be highly unlikely to act the day after the budget as the MPC will want to closely study Chancellor George Osborne’s plans and how they are likely to affect the growth and inflation outlooks,” Archer said.

“Wariness over just what will happen in Greece and how badly the rest of the eurozone could be hit will also likely foster near-term caution within the Bank of England in raising interest rates.”