UK services surge to fastest in more than six years

The activity index rose to 60.2 from 56.9 in June, the highest since December 2006

UK services growth accelerated more than economists forecast to the fastest pace in more than six years, adding to evidence Britain's economic recovery is gathering momentum.

A gauge of activity rose to 60.2 from 56.9 in June, the highest since December 2006, Markit Economics and the Chartered Institute of Purchasing and Supply said in a statement on Monday in London. Economists had forecast 57.4, according to the median of 30 estimates in a Bloomberg News survey. Readings above 50 indicate expansion.

Monday's report is the latest to suggest the economy continued to strengthen at the start of the third quarter after gross domestic product increased 0.6 per cent in the three months through June. The Bank of England will this week release new estimates for growth and inflation, and Governor Mark Carney will publish a report on the implementation of forward guidance.

"Although an early call on one month's data, the forward-looking elements from the survey point to a further strengthening of GDP," said Paul Smith, an economist at Markit in London. "The service sector appears to have genuine momentum with underlying economic conditions and business confidence rising."

The pound extended its advance against the dollar after the report and traded at $1.5354 as of 9:43 am London time, up 0.4 per cent from August 2.

Confidence rises
Reports from Markit last week showed UK manufacturing growth accelerated more than economists forecast in July, while construction expanded at most in three years. Markit said a composite index of the three surveys is now at a record high.

Within services, sales rose last month at the strongest rate since November 2006, while confidence jumped to a 15-month high and payrolls increased, according to Monday's report.

"Underlying demand was reported to be stronger and market conditions improving both at home and abroad," Markit said. "Good weather and a pick-up in the housing market provided further boosts to activity and sales."

The BOE kept its quantitative-easing programme on hold this month and left its benchmark interest rate at 0.5 per cent.

Carney joined the BOE last month from the Bank of Canada, where he introduced forward guidance in 2009. He'll present the UK central bank's analysis on August 7 along with new forecasts.

"The UK economy is gaining momentum and therefore there was little need for any further direct stimulus in the form of rate cuts or QE," said James Knightley, an economist at ING Bank NV in London. "Instead, it is about maintaining the current accommodative monetary policy environment to ensure the recovery continues. This means of course forward guidance."