Britain’s economy continues to grow at a healthy pace, according to a survey of the services sector, which shows companies are hiring more workers as new business rolls in.
The survey of the services sector – which accounts for about four-fifths of the UK economy – follows a similarly positive one of the manufacturing sector.
“The UK is riding out the squalls blowing in from across the Channel as domestic spending remains strong, egged on by low interest rates, firm confidence and rapidly rising employment,” said Rob Wood, an economist at Berenberg.
The Markit purchasing managers’ index – an unofficial but closely watched survey of activity in the services sector – rose from 56.2 in October to 58.6 in November. Numbers above 50 show activity is expanding. The uptick follows a few months of slightly lower readings, although they have been consistent with decent growth.
“The pick-up in the services PMI in November provides reassurance that the UK’s economic recovery has remained strong despite a weaker global environment,” said Samuel Tombs, an economist at Capital Economics.
Prime Minister David Cameron warned recently that “red warning lights are flashing” in terms of the global economy, while Bank of England governor Mark Carney said the “spectre” of stagnation was haunting Europe. But Mr Wood said the latest surveys suggested that “the economy as a whole is more resilient than it has been given credit for”.
Alan Clarke, an economist at Scotia Bank, said the two PMI surveys were consistent with above-trend economic growth.
“That is hardly a reading that suggests rate hikes would be a killer blow to the economy,” he said. Investors do not expect the Bank of England to raise rates from their record low of 0.5 per cent until next autumn, but Mr Clarke said: “Data like these suggest to me that waiting at least another year before we dare risk raising interest rates is a little excessive.”
Respondents to the PMI survey said demand was high, and that they had won contracts from both new and existing clients. They expanded their workforces at the fastest pace since July and complained that higher wage costs were driving up operating expenses. That was offset, however, by lower fuel costs because of the plunging price of oil.
The BoE is waiting for a sign of a recovery in wages before it starts to raise rates. Last month wages grew a touch faster than inflation for the first time in five years, but the official data suggest they remain extremely weak.
The UK economy is expected to grow about 3 per cent this year, faster than any other large advanced economy. But there are concerns that the recovery has relied too heavily on domestic demand. The latest gross domestic product figures for the third quarter showed strong household consumption and healthy expansion in the services sector, but a drop in business investment and net trade.
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