Small rise for July surveys

FURTHER improvements are expected in the forward-looking CIPS/Markit purchasing managers&rsquo; indices (PMI) due out this week, although economists caution that the rises will only be modest at best, indicating a weak recovery for the UK economy in the second half of 2009.<br /><br />The service sector, which accounts for about 60 per cent of UK GDP is expected to inch higher above the critical 50 mark that separates expansion from contraction. <br /><br />George Buckley, UK economist at Deutsche Bank, sees new business activity rising to 50 with overall activity standing at 52. He said: &ldquo;We see further modest improvements in July, consistent with our view that economic growth recovers to a relatively slow pace going forward.&rdquo; <br /><br />But Jonathan Loynes at Capital Economics remains sceptical, given that the 0.6 per cent drop in services output in second quarter &ldquo;left the survey looking significantly out of kilter with the official data. The survey had actually been pointing to modest growth in services output&rdquo;. <br /><br />Loynes remains equally pessimistic for the manufacturing PMI, noting that the temporary boost from firms running down their inventories less quickly will eventually fade. And there are few signs of a pick-up in underlying demand to drive the recovery instead. <br /><br />But David Page at Investec sees some hope in the rise in the Confederation of British Industry&rsquo;s&nbsp; quarterly business optimism index, which picked up again in the third quarter to reach an 18-month high.<br /><br />As the PMIs are forward-looking&nbsp; they will certainly be closely watched by the Bank of England ahead of their policy decision on Thursday.