04.09.201403:27:41UTC+00UK services sector at highest in 10 months

An acceleration in services in the UK has brought the sector to a 10 month high with new orders and output teaming up to fuel expansion.

According to the Markit/CIPS purchasing managers index (PMI) for business activity, Britain’s services improved from an already lofty rating of 59.1 to a faster growing 60.5. It was the largest jump in activity over a single month since October 2013. The gauge has been above the 50 level that separates growth from contraction for 20 consecutive months.

Sharp gains in the number of new businesses as well as positive forecasts by services companies regarding an increase in client spending helped maintain the dominant sector’s continued improvement.

Results weren’t all favorable, however, with service businesses expressing a lower level of confidence when it comes to their outlook for the coming year. A combination of geopolitical concerns abroad causing uncertainty and an impending rise in interest rates pushed down the index to its lowest in 15 months.

Markit’s chief economist Chris Williamson claimed that the rosier results could weigh heavily on Bank of England policy makers in their decision to increase borrowing costs. He described the PMI’s message by saying,  "The sustained elevated PMI readings suggest we will see another quarter of strong economic growth in the third quarter, similar to the 0.8% expansions seen in the first two quarters of the year."

He added that data released earlier this week which showed a slowdown in the UK’s manufacturing sector indicate that the region’s recovery is still heavily dependent on services. Output from British factories declined from July’s 56.4 to August’s 53.7, based on a separate index. The worry is that higher interest rates could negatively impact the services sector and threaten the recovery.