Services sector adds to hopes of sustainable recovery

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SERVICES output inched higher in July, which suggests the UK’s economic recovery is moving on to a firmer footing.

Productivity also rose across the economy for the first time in two years in the second quarter.

The dominant service sector’s output rose 0.2 per cent in July from the previous month and 1.8 per cent from July last year, the Office for National Statistics said.

Separate official data showed that productivity in terms of output per hour worked rose 0.5 per cent in the second quarter – the first quarterly increase since the second quarter of 2011.

“The UK recovery is showing signs of becoming sustainable as improved optimism feeds through to the hard data and the return of growth kick-starts productivity,” said Rob Wood, an economist at Berenberg.

Analysts think Britain’s economy accelerated in the July to September period to grow by about one per cent from the previous three months.

It expanded 0.7 per cent in the second quarter.

Howard Archer, an economist at IHS Global Insight, said the service sector data maintained expectations that the economy would pick up speed in the third quarter.

“Healthy service sector activity played a key role in the UK’s improving growth through the first half of the year and it clearly got off to a decent start in the third quarter,” he said.

Mr Archer added: “Given the dominant role of the services sector, it accounts for 77.8 per cent of total output, its performance is key to GDP growth, although it is highly encouraging to see that industrial production and construction output appear to have seen healthy expansion in the third quarter.

“The recent marked improvement in economic activity and strengthened confidence in the outlook is generating increased demand across a wide range of business services, with professional and financial services leading the way.”

Growth in services appears to have also been strong in August, when a survey of purchasing managers found the fastest overall expansion in the sector in more than six years.

Analysts said that while the productivity figures were broadly positive, it was too early to draw any conclusions on what they mean for the central bank.

Compared with a year earlier, output per hour was 0.4 per cent lower in the second quarter.