Recovery dents certainty on UK interest rates

Tim Wallace
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MARK Carney’s plans to keep interest rates low for another three years took another blow today as new figures showed the UK’s dominant services sector grew at its fastest rate for six years in the three months to August.

Service sector business activity is at its highest level since 2007, the Confederation of British Industry reported today – suggesting the economy is back on track.

Business groups also revealed today that small companies are at last gaining easier access to credit, with lending conditions are improving to such an extent that the UK could “be on the verge of an investment renaissance”, according to manufacturers’ group EEF.

Bank of England governor Carney has suggested he will consider interest rate rises when unemployment falls to below seven per cent, a level he expects to be reached in 2016.

But markets believe a rise will happen in 2015 or even as soon as 2014 thanks to surging economic growth, undermining Carney’s efforts to give firms and households more certainty on interest rates.

That is reinforced by the EEF study showing firms are increasingly able to borrow more.

The number of companies reporting improved availability of credit lines outweighed those reporting a worsening of conditions by a margin of 16 per cent, with SMEs leading the charge.

“With stronger growth and a more positive outlook, the prospects for an investment recovery look better,” said the EEF’s Andrew Johnson.

And the CBI reported improving services sector output with a sharp upturn in business and professional services in the last quarter, and further rises in consumer services. A net balance of 22 per cent of firms hired more workers in the three-month period, and a balance of 36 per cent expect to hire more this quarter.