Services PMI data boosts UK recovery hopes

The monthly index monitoring optimism within the services sector rose to 53.7 in August, its highest level since March and up from 51 in July. A Bloomberg poll of economists gave an average estimate of just 51.2, reports The Telegraph.

The data compiled by Markit was due to be released tomorrow morning but was accidentally published early by Reuters.

Sterling rose against the dollar and gilt futures pared gains after the figure was released, while the euro dropped to a session low of 79.03p.

But Markit’s chief economist Chris Williamson warned that the rise may not be a sign of permanent recovery: “The big question is whether the expansion can be sustained. It is concerning that the upturn in activity was not matched by a similar rise in hiring, with employment in the service sector instead growing at the slowest pace since February.”
Tomorrow the Bank of England’s Monetary Policy Committee holds its monthly meeting, where interest rate and quantitative easing decisions are made. The positive services data may mean the committee is less likely to launch further stimulus.

Vicky Redwood of Capital Economics said: “On the face of it, it adds to the better activity news we have seen recently and reinforces the chances that the Bank of England will do nothing at Thursday’s meeting.

“I wouldn’t read too much into this improvement, it might be just a temporary bounce due to the Olympics. And of course the survey doesn’t include retail. The news from the high street has been more disappointing.

“On the face of it good news but I wouldn’t say that the economy is on its way back to a sustained recovery.”