UK INC PIC

Britain’s huge service sector rounded off its strongest quarter in more than 16 years with solid growth in September, suggesting the economy is approaching the momentum of pre-crisis days.

The Markit/Cips Purchasing Managers’ Index eased slightly to 60.3 in September but remained well above the 50 reading which separates growth from contraction. Over the third quarter of this year the index averaged its highest level since 1997.With incoming new business continuing to expand strongly the survey showed that the firms expectations of future business grew at a much faster rate than August and with Britain’s service sector accounting for roughly 75% of the economy that bodes well for industry and the government.This should also bode well for a healthy third quarter reaction after the 0.7% rise in the second quarter.With employment also growing strongly in the sector this could potentially throw up an issue for the Bank of England with its forward guidance policy on interest rates.City traders now expect that the prediction by the bank that surplus capacity in the economy will keep unemployment above 7% till the latter half of 2016 as overdone and therefore argue that interest rates will rise sooner rather than later.

The survey also showed that the strongest services growth last month was in the financial sector, which Markit’s chief economist Chris Williamson said could reflect the pick-up in the housing market.

Financial markets were calm today despite the government shutdown in America and the threat of a default later this month by the world’s largest economy. The FTSE was up 0.21% to 6450.93 in morning trade. Sterling was steady against the dollar and 10-year gilt yields rose 3 basis points to 2.75%

About Hetal Patel - Chief Editor, Europe

Hetal Patel has written 58 post in this blog.

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