UK Service Sector Activity Rockets to Six-and-a-Half Year High

Britain's dominant service sector saw activity expand at its fastest pace for six-and-a-half years during July, another significant sign that the struggling economy has turned a corner.

The Markit/CIPS UK services sector Purchasing Managers Index (PMI) shot up to 60.2 in July, from the previous month's 56.9. This is the highest reading on the PMI for services, compiled from surveys of private sector purchasing managers, since November 2006.

Not only did output soar, but so did sales, new business orders, and staffing levels. It comes after the powerhouse service sector, which accounts for over three quarters of the UK economy, drove the accelerating GDP expansion of 0.6% in the second quarter.

"Strong UK Services PMI data for July follows on from equally positive numbers from sister construction and manufacturing surveys, as the recovery becomes increasingly broad-based and gains further traction heading through the summer," said Paul Smith, senior economist at survey compilers Markit.

"Indeed, a composite reading of the respective output balances from all three PMI surveys reached a series record high during July, driven by the sharpest increase in new business since March 2004.

"While there were again reports that the better weather bolstered activity during July, the service sector appears to have genuine momentum with underlying economic conditions and business confidence rising. Improved activity in the housing market, which has also bolstered construction, is reported to be having a positive impact.

"Although an early call on one month's data, the forward-looking elements from the survey point to a further strengthening of GDP in Q3 as the UK heads towards "escape velocity" and self-sustaining economic expansion."

UK manufacturing output during July soared to its highest level since February 2011, building on months of gathering momentum in the country's healing economy.

Rising production, strengthening of new orders growth, increasing export orders, and cost inflation rising below the average rate all pushed the Markit/CIPS manufacturing PMI to 54.6 in July, up from June's 52.9.

Output from the UK's long-suffering construction sector leapt in July to its highest level in over three years.

The Markit/CIPS PMI for the construction sector hit 57.0 in July, up sharply from June's 51.0 and the highest reading since June 2010. The bounce came off the back of increasing residential building activity, which also saw output growth jump to its steepest since June 2010.

Prospects of a consumer spending revival have led one of the UK's leading economic forecasters to revise up its growth estimates for both 2013 and 2014.

The National Institute for Economic and Social Research (NIESR) predicts that the UK economy will grow by 1.2% in 2013 and 1.8% in 2014, both 0.3% higher than previously forecast.

"The main cause of the improvement in the economic growth outlook is a rise in the prospects for consumer spending growth," said the NIESR, though it added that it is "at the expense of household saving, rather than a consequence of rising real disposable incomes".