In June 2014, the UK service sector continued its steady growth which points to a further strengthening of the economy in the first half of 2014.
Furthermore, according to the same survey, employment in the service sector grew at a record pace. The services sector plays an important role for UK economy because it accounts for three quarters of UK economic growth. The indication showed that business volumes in the service sector rose at the fastest pace for six months.
According to chief economists, the services sector index taken together with strong construction and manufacturing data published earlier this week suggested that economic momentum was holding.
The ongoing surge in construction and the largest quarterly rise in manufacturing output for 20 years, confirms that the economy is getting back in shape on all fronts. The data shows that there is a UK growth of 0.8% in the second quarter which is building on economic growth of 0.8% in the first three months of the year. Thus, this makes it more likely that there will be an interest rate rise which would occur later this year rather than in 2015.
The data coming from the surveys conducted by the Purchasing Managers’ Index, increases the likelihood of policy makers to decide that a preventive rise in interest rates later this year is warranted. This is believed to be so, especially when we look at the speed at which the labour market is improving.
However, officials from the Bank of England have given mixed signals on when a potential rise in interest rates may happen. The Bank of England governor Mark Carney has been accused by MPs for being unreliable after his suggestion that interest rates may rise by the end of this year and then refuting this idea the following week. According to him, it might be the case that there is more spare capacity in the economy than the Bank has initially estimated in its February Inflation Report. The specific concern of the Bank is the slow rate at which the average wages are increasing,
Markets are seen to be focused on when interest rates would rise, rather than on the point where they would ultimately settle at. Thus, interest rates may rise to 2.5% by the end of the first quarter of 2017.
If the figures are correct, economists believe that we might see even larger falls in unemployment ahead. More payrolls are expected to support consumer spending over coming quarters.