Services lift raises rates pressure

The Advertiser Series: GOOD SERVICE: The services sector, which includes restaurants, has recorded another strong performance GOOD SERVICE: The services sector, which includes restaurants, has recorded another strong performance

INTEREST rates could rise after another strong performance from the UK's services sector, experts have said.

The Markit/CIPS services purchasing managers' index (PMI) recorded a reading of 59.1 in July.

The figure was up from 57.7 in June, and well above the measure of 50 used to indicate growth.

Economists say the highest reading for the sector since November indicates GDP growth will reach at least 0.8 per cent in the third quarter of the year.

It is also expected to increase the chances the Bank of England's monetary policy committee will decide to raise interest rates before the end of the year.

Policymakers will meet this week amid speculation their discussions may produce a split vote for the first time since July 2011.

Chris Williamson, Markit chief economist, said: "The sustained strength of growth will add to calls for interest rates to start rising later this year.

"However, with prices charged for services rising only very modestly again in July, an absence of inflationary pressures means there is still a strong case for any tightening of policy to be delayed until 2015."

The report follows a strong construction sector reading, although last week's manufacturing figures were disappointing, as firms struggled with the strong pound and weaker demand in key export markets.

The services report found more staff were recruited to help firms keep on top of current workloads and in anticipation of further growth in the coming months.

Taken across all three CIPS surveys, the rate of job creation eased from June's all-time high but remained consistent, with about 100,000 jobs created by the private sector in July.

Mr Williamson added this meant the unemployment rate should fall below six per cent by the end of the year, compared with 6.5 per cent in the three months to May.

The services sector, which covers everything from banks to high street restaurants, accounts for about three-quarters of the country's economic activity.

Backlogs of work in the sector rose at a marked and accelerated pace during July, with the degree of growth the strongest since January.

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