LONDON: Activity in the UK’s growth driving service sector edged up in July, following a similar bump in the manufacturing sector and raising hopes the economy has had a solid start to the third quarter.The latest index, based on a monthly survey of service sector firms from IHS Markit, rose from 53.4 to 53.8 in July – slightly ahead of forecasts – and up from a four-month low hit in June. Any figure over 50 indicates expansion. The service sector accounts for around four-fifths of the UK economy and showed gradual signs of picking up in the second quarter of the year. Official GDP figures show the sector expanded by 0.5 per cent in the three months to June from 0.1 per cent at the start of the year. Markit’s purchasing managers’ index asks businesses about their output, hiring and expectations to provide a broad picture of the health of the UK economy. Manufacturing activity, as measured by the PMIs, also accelerated in July on the back of rising export orders, while the construction sector dipped to an 11-month low. Overall, the surveys suggest UK GDP growth will stay at 0.3 per cent in the third quarter, matching the previous quarter, but still a “sluggish expansion”, said Chris Williamson, chief business economist at Markit.
In encouraging news for the UK’s labour market – which already boasts its lowest unemployment in over a decade – service sector firms reported their best rate of hiring since early 2016. But businesses remained relatively downbeat on their outlook for the next 12 months as the government has started its quest to extricate itself from the EU. “The subdued level of business optimism suggests it’s likely that growth will at least remain modest and could easily weaken in coming months”, said Mr Williamson. Later today, the Bank of England will be giving its latest quarterly outlook on the UK economy in its Inflation Report. The BoE is expected to deliver a small trim to its GDP forecast for the year after the economy suffered its slowest first half to the year since 2011. The BoE is expected to keep its interest rates unchanged at a record low of 0.25 per cent after a tight 5-3 voting split in June.
