UK services sector jumps again

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IOL economy arrows Filomena Scalise

London - Britain's services industry expanded last month at the fastest pace in nearly a year, a survey showed on Wednesday, but some signs indicate that the crisis in Ukraine might cool things down soon.

The monthly Markit/CIPS purchasing managers index for the services sector also suggested that some companies were struggling to keep up with demand, something the Bank of England is likely to note as its ponders when to raise interest rates.

The PMI jumped to 60.5 in August from 59.1 in July, above even the highest forecasts from economists in a Reuters poll.

The strength in services contrasts with a slight cooling in the country's factory sector, which has been hit by concerns that the conflict in Ukraine could escalate further.

A survey of manufacturing, published earlier this week, showed the pace of growth slowed to a 14-month low in August.

But the leap in services was strong enough to take the composite PMI for Britain's private sector as a whole to its highest level since November.

The survey could pose a challenge to the Bank of England's prediction, reiterated in August, that the economy will slow slightly in the second half of 2014.

Two BoE policymakers broke ranks and voted last month in favour of an interest rate rise in response to the strong recovery in Britain's economy.

The Bank is watching closely for signs that spare capacity in the economy is being used up quickly.

Some services firms surveyed said they had insufficient staff numbers but growth in payrolls was the slowest since March, suggesting employers might be finding it hard to hire the right kind of staff.

Despite the recovery, the BoE is likely to keep rates on hold at its September policy meeting which ends on Thursday.

Economists mostly predict a rate hike only in early 2015.

Chris Williamson, chief economist at Markit which compiles the PMI, said August's PMI surveys suggested Britain's economy would grow at a pace similar to the 0.8 percent quarterly rate seen in the first two quarters of this year, well above its long-term average 0.5-0.6 percent.

But the weakness of exports raised the risk of Britain relying too much on domestic demand to keep the economic recovery going, something that will weigh on the BoE, he said.

“Dovish policymakers will worry that the Ukraine crisis will also filter through to a significant slowdown in services and construction,” said Williamson.

“Some impact is already evident, with growth of new orders and employment moderating in all three sectors in August.”

In the services sector, new work grew at its weakest pace in three months and overall confidence in the sector sank to a 15-month low amid some worries over the strength of business pipelines, Markit said.

The BoE can take some comfort from almost no growth in prices charged by companies in the services sector.

The PMI survey covers private-sector services firms excluding retailers, and represents almost half of the economy. - Reuters

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