UK services sector growth at six-year high

Britain's service sector had a 'stellar' August according the latest Markit/CIPS survey

The UK service sector grew at its fastest pace in six years in August, according to the latest survey by Markit and the Chartered Institute of Purchasing and Supply (CIPS).

The business activity index registered 60.5 in August, the highest reading in more than six-and-a-half years.

It also showed that backlogs of work are running at the highest level in more than 13 years.

But despite the extra work, there was only a small increase in employment.

'Stellar' performance

It was the eighth successive month that the survey, which questions 700 firms, has shown a growth in new business.

"The UK service sector turned in another stellar performance in August, building on the growth momentum seen during July," said Paul Smith, senior economist at research firm Markit.

"Moreover, the sector's recovery, which has been evident since the start of the year, has legs."

Economists say the performance of the service sector is giving the whole economy a lift.

"Robust service sector activity played a key role in the UK's developing recovery through the first half of the year, and the very strong purchasing managers survey for August suggests that the services sector is on course to make an even larger contribution to GDP growth in the third quarter," said Howard Archer an economist at IHS Global Insight.

Interest rates

It is the latest in a series of upbeat reports on the UK economy.

On Tuesday the OECD economic agency sharply increased its growth forecast for the UK economy this year to 1.5% from an earlier estimate of 0.8%.

It said UK growth had gained momentum through the first half of the year.

But economists say the growing momentum could put pressure on the Bank of England (BoE) to take action on interest rates.

"Given the strength in orders, rising business optimism and a pick-up in investment intentions and employment hiring surveys we expect the BoE to be forced into tightening monetary policy well before the third quarter of 2016 that they are currently suggesting is the earliest point policy tightening will start," said James Knightley from ING.