Economy picks up steam as services sector growth recovers: survey

(c) Sky News 2017: <a href="">Economy picks up steam as services sector growth recovers: survey</a>

The UK economy appeared to have picked up steam in April after closely-watched business survey data showed a better-than-expected performance from the dominant services sector.

Taken together with readings from the manufacturing and construction industries released earlier this week, the figures suggested GDP was growing at a pace of 0.6% at the start of the second quarter.

That follows a disappointing first quarter when, according to official figures, growth slowed to just 0.3% amid a squeeze on household budgets.

Economists suggested the latest figures might provide ammunition for Bank of England hawks favouring an interest rate rise when the Bank's rate-setting Monetary Policy Committee meets next week.

The Markit/CIPS Purchasing Managers' Index (PMI) data showed a reading of 55.8 for the services sector, a four-month high - where the 50 mark separates growth from contraction.

However, there were also warning signs about the economy, with prices charged by services firms rising at the fastest rate since July 2008 and optimism from companies fading.

The sprawling services sector, ranging from bars and restaurants to solicitors and law firms, represents four-fifths of the UK's economic output.

Chris Williamson, chief business economist at IHS Markit (Stuttgart: A1139A - news) , said the industry surveys "collectively point to GDP growing at a rate of 0.6% at the start of the second quarter".

He said consumer spending was expected to slacken in coming months - with the April survey showing weakness in sectors such as hotels, restaurants and other household-facing businesses.

But he added: "There's good reason to believe that at least 0.4% GDP growth can be achieved in the second quarter as a whole."

James Knightley, senior economist at ING Bank, said: "The combination of healthy growth and rising inflation is likely to lead to further calls for higher interest rates."

But he said that uncertainty and weaker spending power still looked likely to lead to lower growth in the UK economy overall, arguing for rates to remain stable for now.