Services sector set to add to growth hopes

Continued growth in Britain’s powerhouse services sector will today underpin hopes that the country’s economic recovery is gathering pace, giving Chancellor George Osborne a lift on the eve of his autumn statement.
Scottish building chiefs said the industry faces continued challenges. Picture: Getty ImagesScottish building chiefs said the industry faces continued challenges. Picture: Getty Images
Scottish building chiefs said the industry faces continued challenges. Picture: Getty Images

Coming hot on the heels of upbeat reports on the health of the manufacturing and construction industries, today’s figures are widely expected to show continued expansion in services, putting the UK on track to deliver growth of 1 per cent or more in the final three months of the year.

As a broad-based recovery takes hold, this week has already seen output in the manufacturing sector grow at its fastest pace in almost three years, while yesterday brought news that growth in the construction industry hit a six-year high in November, fuelled by the booming housing market.

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However, the figures came as fresh data showed that new housing completions in Scotland in the second quarter were 14 per cent lower than a year ago, and Scottish Building Federation managing director Vaughan Hart said the industry faces “continued challenges”.

Philip Hogg, chief executive of trade body Homes for Scotland, added that the situation was “very fragile”, and while current indicators were more positive, “we now need to ensure that this increased activity in the housing market is sustained in order that it translates into the building of much-needed new homes”.

The construction purchasing man-agers’ index (PMI), compiled by the Chartered Institute of Purchasing & Supply (Cips) and Markit, hit 62.6 in November, up sharply from 59.4 in October and well above the 50 mark that separates expansion from contraction.

Markit chief economist Chris Williamson said: “Alongside an improvement in the manufacturing sector, the data suggest that growth of gross domestic product is likely to have accelerated from the 0.8 per cent quarterly pace seen in the third quarter, possibly exceeding 1 per cent.”

The construction upturn has seen employment in the sector grow at the quickest rate since August 2007, as the wider recovery encouraged companies to commit to investing in property and infrastructure, helped in part by low borrowing costs.

BNP Paribas economist David Tinsley said the strongest contribution came from housebuilding, where activity reached a ten-year high. Along with record-low interest rates, the sector has benefited from a raft of UK government initiatives to prop up the property market, but the Bank of England said last week that banks would no longer be able to use its flagship Funding for Lending Scheme to tap into cheap funds earmarked for mortgages – from next year, the programme will concentrate its efforts on improving the flow of credit to small business.

Tinsley said the wider economy looked on track to grow by 1 per cent in the final three months of the year, up from 0.8 per cent in the third quarter, and “if this sort of pace can be continued into 2014, then the level of UK output will have risen above its pre-crisis peak by next summer”.

Howard Archer, chief UK economist at IHS Global Insight, said much still depends on consumers’ appetite for spending, although the British Retail Consortium said that sales had gathered pace towards the end of last month.

Archer added: “If consumer spending gains appreciable momentum as Christmas gets ever nearer, fourth-quarter growth prospects for the economy will be looking very bright.”

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