Services boost gives shot in the arm for UK growth

Julian Harris
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BRITAIN’S economic recovery may be on a stronger footing than previously thought, with data out yesterday showing that its service sector grew in May at the fastest pace for over a year.

The news comes on the back of rosier than expected surveys of the UK’s construction and manufacturing industries from earlier in the week.

Some analysts are now expecting growth of over one per cent in 2013, with one City firm – Henderson – maintaining its ultra-bullish forecast of two per cent GDP expansion.

Services – which comprise around three quarters of the UK’s output – saw new business rise at the sharpest rate for over three years in May, according to the latest purchasing managers’ index (PMI) from Markit.

The research firm found that its PMI score for May jumped to 54.9, up from 52.9 in April. The sub-index that measures new business shot up even more sharply, from 54.2 in April to 57.2.

The higher the score above 50, the faster the growth.

Britain’s construction businesses, which have been struggling of late, broke into growth territory in May according to figures Markit published on Tuesday. And the manufacturing sector, a larger part of the UK economy than construction, also improved its PMI score in May, from 50.2 to 51.3.

Confidence in the economy has picked up lately, with a tracker of household morale recorded by YouGov improving for three straight months.

YouGov’s so-called Heat (Household Economic Activity Tracker) hit a score of 103 in May, City A.M. revealed yesterday – its highest score in three years.

“A weighted average of new business indices from the surveys is now at a similar level to mid-2009, ahead of a 2.4 per cent rise in GDP in the year to the third quarter of 2010,” Simon Ward of Henderson said yesterday.

But Scott Corfe of the Centre for Economics and Business Research said that “questions should be asked about the sustainability of this recovery”.

“The chancellor has effectively given up on substantial deficit reduction in the short-term, meaning that deep spending cuts loom further down the road,” Corfe warned.