September 3, 2009 / 9:27 AM / 10 years ago

UK services PMI near 2-year high

LONDON (Reuters) - Activity in Britain’s services sector grew at its fastest pace in nearly two years in August, boosted by a surge in firms’ optimism and reinforcing hopes the economy is pulling out of recession.

The headline business activity index of the CIPS/Markit services Purchasing Managers’ Index rose to 54.1 in August from 53.2 in July, the highest since September 2007 and just beating forecasts for a reading of 53.9.

Thursday’s survey contrasts with a similar poll earlier this week showing manufacturing activity fell back last month, but the greater weight of the services sector in Britain suggests the economy is well-placed for recovery.

The pound rose to a session high against the dollar and hit a one-week high against the euro as investors speculated that growth had returned after five quarters of decline.

“It’s pointing to a fairly rapid recovery,” said Amit Kara, economist at UBS. “The business activity balance is now creeping up to its long-run average, suggesting that the sector is once again likely to propel the economy into recovery.”

Official data have also suggested things are looking up, with revised figures last week showing the economy shrank by 0.7 percent between April and June, less than the 0.8 percent contraction originally pencilled in and a vast improvement on the 2.4 percent decline in the first three months of this year.

But Britain is trailing some of its European neighbours, with France and German both returning to growth in the second quarter.

An equivalent survey for Germany also out on Thursday showed the services PMI jumped to 53.8 this month, its highest since last May, but the French services PMI remained below the 50-point level that divides growth from contraction, at 49.3 up from 45.5 in July.

SIGNS OF PICK-UP

Almost a quarter of firms polled said activity increased in August, partly due to a rise in new orders, with the new business index holding near July’s 16-month high, the survey showed.

And companies were their most optimistic about the prospects for the coming year since the onset of the credit crunch, with the business expectations index rising to 72.3 from 69.3, its highest since August 2007.

However, many businesses had to cut prices to encourage demand even as their costs rose. The input prices index was its highest since November, while the prices charged index fell almost two points from July.

Businesses shed jobs at their slowest pace in almost a year, according to the survey, but rising unemployment and the prospect of sharp cuts in government spending over the coming years means any economic recovery is likely to be muted.

“We’re of the view that the pick up will be very gradual,” said Philip Shaw, economist at Investec. “But even so, the short-term evidence is positive and we hope the recession is now behind us.”

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