Services surge points to August rate rise

The UK services sector reported its fastest rise in activity since last October, increasing expectations of an imminent interest rate rise.

The purchasing managers' index (PMI) from IHS Markit/CIPS showed activity rose to 55.1 in June, up from 54.

IHS chief business economist Chris Williamson said the reading added to signs that the economy rebounded in the second quarter.

He said it "opens the door for an August rate hike".

Any reading above 50 indicates an expansion rather than a contraction.

IHS Markit estimated that UK gross domestic product (GDP) rose by 0.4% in the three months to June, compared with a 0.2% rise in the first three months of the year.

Mr Williamson said: "The sharp rise in business costs, linked to surging oil prices and the need to offer higher wages, suggests inflation will also pick up again from its current rate of 2.4%."

Activity in the UK services sector makes up nearly 80% of the UK's GDP.

The survey of purchasing managers found that new work increased strongly in June, in particular for business and financial services.

Overall, activity grew at the strongest pace since October 2017.

It follows better than expected growth in the UK construction sector for June, according to IHS Markit/CIPS, and also a modest increase for manufacturing during the same month.

"Nonetheless, there were again reports that Brexit-related uncertainty had held back business investment, particularly in relation to spending by large corporate clients."

Howard Archer, an economist with the EY Item Club, said: "The improved services survey completes an overall stronger set of purchasing managers' surveys pointing to the economy warming up in June."