UK services signal growth as positive news piles up

THE BRITISH services sector saw its strongest month in over two years this June, according to the Markit services purchasing mangers’ index (PMI), announced yesterday.

The index hit 56.9, way above expectations for a result of 54.5. Any reading above 50 indicates expansion in business activity for the sector. In May, the index stood at 54.9, and has now improved for six months in a row. All the UK’s PMI readings for different sectors are positive, a good indication of growth

The amount of new incoming work for businesses is straining their capacity, leading to the largest backlog of work since 2007. Although businesses also reported the largest staffing increase in nearly six years, firms are still building up extra work, indicating that employment in services may rise in the near future.

Robert Wood, chief UK economist at Berenberg said the boost to services could be the beginning of the end of QE: “If the services PMI remained near its current level, further asset purchases could become unlikely”. However, he added: “PMIs could well fall back from their current elevated levels over the next few months, given the pressure on households”.

There was more positive news for the economy yesterday, as the Office for National Statistics (ONS) announced that the profitability of British firms is heading back towards pre-crisis levels. Profits have been depressed in recent years, but the net rate of return for non-financial corporations is now back to 12 per cent, the joint highest share seen since 2008.

The Bank of England also suggested an upswing in lending over recent months. Availability of credit rose from its level for the first quarter of the year, with demand for secured lending increasing most of all, reflecting anecdotal evidence of a nascent recovery in the housing market.