UK Service Sector Enjoys Best Growth For 6 Years

With the demise of UK heavy industry in the 1980s, the service sector became the dominant sector of the UK economy and is responsible for the prosperity of the nation, or otherwise.

Data from the Markit and the Chartered Institute of Purchasing and Supply survey for last month shows that the UK service sector has enjoyed its best rate of growth for six years. The survey value came in at 60.5 for August up from 60.2 in July. A further encouraging feature was that the backlog of work is at its highest level for 13 years. It is to be hoped that this will translate to the creation of fresh jobs if growth continues, but as yet, unemployment in the UK has only eased slightly. Employment creation is a lagging indicator of the economic cycle and jobs will only be created if there is a sustained climate of demand.

The survey reported the eighth straight month of growth in new business. The survey is based on feedback from 700 UK businesses.

Senior economist at Markit, Paul Smith commented that: “The UK service sector turned in another stellar performance in August, building on the growth momentum seen during July. Moreover, the sector's recovery, which has been evident since the start of the year, has legs."

Indeed, recent economic indicators for the UK have persuaded the Organisation for Economic Cooperation and Development to sharply increase their prediction for full year GDP from 0.8% to 1.5%, noting that the UK economy had “gained momentum” through the first half of 2013.

Inevitably, better economic performance is causing analysts to question when the Bank of England will be forced to tighten monetary policy, despite Mark Carney’s recent “forward guidance”.