services hit 2014 high, house prices in focus
Send a link to a friend
[May 06, 2014]
By William Schomberg
— Britain's dominant
services sector grew in April at its fastest pace so far this year,
suggesting the broader economy is picking up more speed and raising
questions about the Bank of England's determination not to raise
interest rates any time soon.
The pound jumped to its highest level against the dollar in nearly
five years after the Markit/CIPS survey came in much stronger than
economists had expected and showed companies were hiring
"All the signs are that Britain is booming," said Michael Saunders,
an economist with Citi in London.
"The need for the current ultra-loose policy stance is receding
rapidly, in our view. Indeed, the current policy stance may well -
if sustained for much longer - start to create a dangerous bubble
mentality in housing and other assets."
The Organisation for Economic Co-operation and Development also
voiced its concern about Britain's rising house prices, calling for
more action to prevent a bubble.
The Bank of England holds a monthly rate-setting meeting on
Wednesday and Thursday. It is widely expected to start raising
borrowing costs only next year as it allows Britain's recovery to
But a top BoE official last week raised expectations that the Bank
could take other steps as soon as next month in response to the rise
in house prices which reached nearly 11 percent last month.
The Markit/CIPS services purchasing managers' index (PMI)rose to
58.7 in April from 57.6 in March, far above the 50 threshold for
Economists taking part in a Reuters poll had expected an unchanged
SECOND-QUARTER SPEED UP?
Britain's economy grew at its fastest annual pace in more than six
years in the first quarter of this year.
"The UK economic recovery shows no signs of running out of steam,
and growth could even accelerate further in the second quarter,"
said Chris Williamson, chief economist at PMI compiler Markit.
"The April numbers point to the economy growing by at least 0.8
percent again in the second quarter."
Britain is expected to grow faster than all the other Group of Seven
economies this year although it remains a touch smaller than it was
six years ago, before the financial crisis.
A composite index combining PMIs for manufacturing and construction,
plus the services sector, showed output across the economy rose to
59.4 in April from 58.2 in March, back up to its highest level since
[to top of second column]
Companies in the private sector took on staff at the fastest rate in
the survey's history, dating back to January 1998.
"The strength of the PMI's output and employment readings suggest
that the discussion among policymakers about when interest rates
will need to start rising will heat up, especially when viewed
alongside recent house price gains," Williamson said.
Rob Wood, an economist with Berenberg bank in London who used to
work at the BoE, said he expected at least one of the Bank's nine
policymakers to break ranks and vote for a rate hike by late summer.
He saw a 35 percent chance of a first hike in the fourth quarter of
this year, earlier than the second quarter of 2015 that the Bank
pointed to in February. The BoE is due to publish new economic
forecasts on Wednesday next week.
Tuesday's survey showed little sign of price pressures in the
services sector, which accounts for more than three-quarters of
Britain's economy and includes firms ranging from major banks to
high street restaurants.
Growth in new work slipped a bit but rising confidence in the
outlook was not far off February's four-and-a-half-year peak,
helping to prompt companies to ramp up employment by the most since
last October, the survey showed.
(Writing by William Schomberg; Editing by Hugh Lawson)
[© 2014 Thomson Reuters. All rights
Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.