Britain’s economy is on course to rebound from a snow-hit start to 2018 after activity in the dominant services sector jumped to a three-month high in May.
The Markit/CIPS services purchasing managers’ index, which is watched closely in the City, showed a reading of 54 last month, up from 52.8 in April. A reading above 50 indicates growth.
IHS Markit said a run of improved economic data indicates UK gross domestic product is set to grow at between 0.3 and 0.4 per cent in the second quarter of the year.
Britain’s economic growth is on course to rebound from a snow-hit start to 2018.
This is potentially four times the paltry 0.1 per cent recorded for the first three months, during which the country was battered by repeated snow storms.
The pound has risen 0.5 per cent to $1.34 on the news, and 0.4 per cent on the euro to €1.14.
The data will raise expectations that the Bank of England will rekindle its plans to hike interest rates, but economists saying said it will still hold off for another couple of months at least.
They are pencilling in an increase from 0.5 per cent to 0.75 per cent for August.
However it was not all positive, with the survey also revealed lacklustre levels of new work orders and weak confidence among firms in the services sector, which accounts for around three-quarters of gross GDP in the UK.
Chris Williamson, chief business economist at survey compiler IHS Markit, said: ‘The improvement in service sector activity adds to evidence that the economy is on course to rebound in the second quarter but, like the earlier manufacturing and construction surveys, raises questions about the outlook.’
Economists say Bank of England chief Mark Carney and his colleagues may now raise rates as soon as August.
‘The signs of economic growth rebounding in the second quarter will likely up the odds of the Bank of England hiking interest rates again in coming months, likely August, but with the forward-looking indicators suggesting that the economy could relapse, a rate rise is by no means assured,’ he added.
James Knightley, chief international economist at ING broadly concurred.
‘These data releases keep the prospect of an August rate hike firmly on the table,’ he said. ‘But, if they do indeed go for it, we doubt it will be followed quickly with additional hikes given the economic threats from rising fuel costs, stagnant real wages, Brexit uncertainty and a reluctance amongst firms to invest in the UK.’
Howard Archer, chief economic advisor at the EY ITEM Club was more bearish and said an August rate hike was not a certainty.
‘The jury will likely remain out on the prospects for an August interest rate hike given that the Monetary Policy Committee wants to see sustained evidence that the economy is improving before tightening monetary policy.’