Surge in services sector stokes recovery hopes

Grainne Gilmore

Activity in Britain’s services sector, the engine room of the country’s economy, jumped by more than expected in July, boosting hopes that the country is clawing its way out of recession.

Some 24 per cent of Britain’s hotels, accountants and other companies that make up the services sector said business was better than the previous month, while only 16 per cent said it was worse, according to figures from CIPS/Markit.

The resulting seasonally adjusted balance rose to 53.2, the third consecutive month it has been above the 50 mark which indicates that activity is rising rather than falling.

Separate official figures also showed that industrial output rose unexpectedly in June, at its fastest pace since October 2007, as car production surged, further boosting hopes that the economy may grow in the third quarter after shrinking for five consecutive quarters.

While the upbeat figures will be welcome news for the Bank of England’s Monetary Policy Committee as it starts its two-day interest rate meeting today, dire lending figures, released yesterday, showed that businesses were still struggling to access finance.

Analysts also warned that while today’s data indicated that conditions for service companies were improving, it was unlikely to stem mounting job losses which could undermine any recovery.

Paul Smith, economist at Markit, said: “While the improvement in the performance of the services industry has been remarkable in many respects, it should be noted that growth is from a low base and the recession has left companies with a high degree of excess resources. This is continuing to translate into job losses, which remained heavy in July.”

“Subsequent pressure on household finances points to continuing fragility in demand, and remains the key concern over the sustainability of the recovery,” he added. (Grainne Gilmore, The Times) http://business.timesonline.co.uk/tol/business/economics/article6739736.ece

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