July 4, 2007 / 9:18 AM / 13 years ago

Services sector accelerates in June

Executive Chef John Williams works in the kitchen of The Ritz hotel in London, April 19, 2006. The services sector accelerated unexpectedly in June and inflation pressures picked up, according to a survey on Wednesday that reinforced expectations of another interest rate rise this week. REUTERS/Catherine Benson

LONDON (Reuters) - The services sector accelerated unexpectedly in June and inflation pressures picked up, according to a survey on Wednesday that reinforced expectations of another interest rate rise this week.

The Chartered Institute of Purchasing and Supply/NTC activity index — covering businesses ranging from hotels to financial services — rose to 57.7 last month from 57.2 in May. That was the highest since January and wrong-footed analysts who had expected a pullback to 57.0.

Particularly worrying for the Bank of England will be a rise in both input and output price inflation. The input price index rose to 58.8 from 58.3, the highest since March, while the output price index rose even more strongly to 53.3 from 52.5.

“This survey adds further justification to tomorrow’s expected rate hike and a continuation of growth and price pressures at these levels could support further action ahead,” said George Buckley, economist at Deutsche Bank.

The central bank is concerned strong demand and capacity constraints are continuing to exert upward pressure on prices despite four interest rate rises in under a year.

Its Monetary Policy Committee is expected to raise interest rates again on Thursday to 5.75 percent, their highest in more than six years.

The strength of the services sector, which makes up around three-quarters of the economy, may persuade even some of the dovish members on the committee the economy can withstand higher borrowing costs.

The new business index rose to 59.6 last month, its highest since November, while the outstanding business index rose to 52.0, its highest since December. The employment index rose to 54.5, its highest since February and well above its long-run average.

“The most notable movement in June was the acceleration in new business growth to a seven-month high, which suggests a possible pick-up in activity growth later in the year,” said Andrew Grantham, economist at NTC.

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