August 5, 2013 / 8:45 AM / 7 years ago

INSTANT VIEW 3-Britain's services growth fastest since 2006 - PMI

LONDON (Reuters) - Britain’s services sector expanded at the fastest pace in more than six years last month, far outstripping economists’ forecasts as new orders flowed in more rapidly, the monthly Markit/CIPS Purchasing Managers’ Index (PMI) showed on Monday.

The very strong services reading follows similar gains in last week’s manufacturing and construction PMIs, taking a composite of these indexes to its highest level since the series began in January 1998.

ROSS WALKER, RBS

“It’s very strong. Pretty close to series highs and I see that Markit are saying that the composite is at its highest level historically.

“I don’t take it too literally. I don’t think we are really expanding at that pace, but if all we are trying to achieve is getting UK growth at a 2 percent type rate, then these numbers are quite encouraging.

“It does suggest that we are reaching escape velocity. As always the key is going to be if this is a short term exaggeration, maybe because of a survivor bias because a large number of companies are reporting a modest improvement. If we see this settle down towards the autumn, where does this normalise to? But it’s hard to dispute there is some recovery going on and that it’s stronger than had been thought.”

GEORGE BUCKLEY, DEUTSCHE BANK

“Very strong numbers, consistent with growth - particularly strong in Q3. It looks like it’s probably getting close to or around about the 1 percent mark, I would expect. It looks like the composite number is the highest for at least 15 years - that’s strong.

“There’s two ways to interpret this when it comes to guidance. One is that they don’t need to do anything at all when you have such a high reading on the PMI and growth is looking pretty strong. The second argument against that is that this is exactly the time you need to do guidance because it prevents the markets from reacting to that data and thereby threatening the recovery. I am certainly of the former camp; I don’t think guidance is needed. I think we’re going to get it this week but it may well take a looser form than some people are expecting.

“It may be more of a case, like the ECB, with time commitment and probably, on top of that, some sort of commitment that we won’t raise interest rates until the economy is on a much steadier footing, possibly related to previous peak levels of GDP.”

VICTORIA CLARKE, INVESTEC

“It’s another storming PMI. Coupled with the lead that we saw in the construction PMI and the pretty solid manufacturing PMI, all those indicators are suggesting the UK recovery is really gaining pace now.

“To us that points to the Bank focusing its debate on forward guidance against this backdrop of indicators which are getting towards rate hike territory.

“The Bank will need to manage expectations about any policy hikes coming quite out in the future rather than anything in the near term, hence the forward guidance we expect to see on Wednesday.”

BRIAN HILLIARD, SOCIETE GENERALE

“These numbers tell us that growth is picking up strongly. With this backdrop some people might question why the Bank would bother with forward guidance, but I still think that some sort of state-contingent guidance will be announced this week.

“What’s interesting is why the recovery should be accelerating now. Some people say it’s because of the housing market picking up, but it could also be a delayed impact from earlier stimulus.”

PAUL SMITH, SENIOR ECONOMIST, MARKIT

“Strong UK Services PMI data for July follows on from equally positive numbers from sister construction and manufacturing surveys, as the recovery becomes increasingly broad-based and gains further traction heading through the summer.

“Indeed, a composite reading of the respective output balances from all three PMI surveys reached a series record high during July, driven by the sharpest increase in new business since March 2004.

“While there were again reports that the better weather bolstered activity during July, the service sector appears to have genuine momentum with underlying economic conditions and business confidence rising. Improved activity in the housing market, which has also bolstered construction, is reported to be having a positive impact.

“Although an early call on one month’s data, the forward-looking elements from the survey point to a further strengthening of GDP in Q3 as the UK heads towards ‘escape velocity’ and self-sustaining economic expansion.

“However, a full and real recovery for many people will be one that results in meaningful job creation, a strengthening in real wages and an associated improvement in living standards which have been under substantial pressure in recent years.

“While there is a long way to go, July’s survey provided some positive news on this front, with employment rising at a rate only a touch off June’s near six-year record and reports of higher salaries being paid.”

Reporting by David Milliken, Mark Anderson, Christina Fincher, Max De Haldevang and Limei Hoang

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