Britain’s economy “continued to boom” last month as the dominant services sector expanded faster than expected in May and hiring matched a 17-year high, adding to debate on when the Bank of England will raise interest rates, reports The Telegraph.
The Markit/CIPS services purchasing managers’ index (PMI) ticked down to 58.6 in May from 58.7 in April, but was ahead of economists’ forecasts of a reading of 58.2 and still well above the 50 mark that indicates growth.
The services sector, which represents roughly 70 per cent of the economy, saw a sharp rise in job creation as employment rose to the joint highest level since May 1997, while wages also pushed higher. That led to the sharpest rise in operating costs for four months, but overall inflation pressure looked subdued.
“The services survey may provide some reassurance to the Monetary Policy Committee that strong growth is not causing inflationary pressures to build. Although the input prices balance rose to a four month high in May, the output prices index fell slightly and to a level consistent with modest inflation in the services sector,” Samuel Tombs, UK economist at Capital Economics said.
Chris Williamson, chief economist at Markit, said the UK economy “continued to boom” last month.
He added that today’s survey, together with similarly upbeat data from the manufacturing and construction sectors,meant the economy looked set to grow by 0.8pc in the second quarter, to finally push the economy back above the size it was before the financial crisis struck in 2008.
Britain’s economy posted its fastest annual growth in more than six years in the first quarter and is expected to grow about 3 per cent in 2014.
Several of the nine-member Bank of England committee that votes on monetary policy have indicated they may soon start to vote for interest-rate increases, and with continued strong data pointing to sustained growth, it will raise questions as to when the record-low bank rate of 0.5pc will be raised higher.
“The really great news is that job creation continued to run at the record pace seen in April, meaning unemployment looks set to fall further,” Mr WIlliamson said.
“With every strong PMI reading, the more lively the discussion will become among the Bank of England’s Monetary Policy Committee that a pre-emptive early hike in interest rates is warranted.
“However, with inflationary pressures remaining subdued, the case for higher rates is by no means clear cut.”
The BoE’s interest rate-setting committee starts their two-day meeting today with no change expected to monetary policy. Markets expect a first rate hike only in 2015 but some economists see a growing chance of a move in late 2014.