UK Services Sector Grows at Fastest Pace in 16 Years

This article by RTE News on November 5th, 2013 tells us that Britain's services sector activities increased at the fastest rate since May 1997.

Latest strong data on UK services sector may see Bank of England revising its growth forecasts upwards

Activity in Britain's services sector increased at the fastest rate since May 1997 last month, a closely watched survey showed today.

The data raised the prospect of a big jump in economic growth in the final three months of 2013.

Financial data company Markit said its services purchasing managers' index (PMI) rose to 62.5 in October from September's 60.3.

This easily beat economists' forecasts for a fall to 59.8 and increased the chance that the Bank of England will revise up its quarterly growth forecasts next week.

Readings above 50 point to growth, and Markit said that combined with strong PMI surveys for manufacturing and construction, the latest data suggest quarterly economic growth of 1.3%, up from 0.8% between July and September.

"The UK economic recovery moved up a gear again in October," said Chris Williamson, chief economist at Markit.

"Manufacturing, services and construction all continued to see very strong rates of expansion, pointing to an ongoing broad-based upturn. However it is the services sector which, due to its sheer size, is the major driving force," he added.

Britain's economy - which looked on the verge of its third recession in five years at the start of 2013 - has repeatedly surprised on the upside this year, and Markit's composite PMI is its highest since records began in 1996.

Britain's position contrasts sharply with that of the euro zone, where last week unemployment hit a record high while the annual inflation rate tumbled, bringing a possible European Central Bank interest rate cut into view.

However total UK output is still well below its 2008 peak - a much weaker state of affairs than in most other big advanced economies - and in August the Bank of England pledged not to raise interest rates before unemployment falls to 7%.

The bank forecast in August that Britain's jobless rate - now 7.7% - would take more than three years to sink that low, a timescale many economists think will be brought forward when the central bank publishes fresh forecasts next week.

The Markit survey showed that employers in the services sector were hiring staff at the fastest rate since May 1997. A broader composite employment index, which includes manufacturers and construction firms, rose to its highest since that series started in January 1998.

Markit's surveys do not cover the UK public sector - where more cuts to jobs and spending are planned as part of the government's austerity programme - or British retailers, who have had mixed fortunes due to falling disposable income.

The British Retail Consortium, which represents larger chains, said earlier today that its members experienced modest annual sales growth of 2.6% in value terms in October.

However, prospects for the rest of the services sector appear brighter. The services PMI's new orders component rose to 63.4 in October from 60.6 in September, indicating the fastest inflow of orders since the survey started in July 1996.

Firms reported getting longer-term contracts than before, and that some were linked to growing activity in the UK property market, where the government has announced several measures aimed at boosting construction and home purchase.

The services PMI also pointed to potential future inflation pressures. Firms reported that they were reaching capacity constraints, with backlogs of work rising at the fastest rate since May 1997, and that as well as hiring more staff, they were also raising salaries.

Companies also faced the biggest rise in input costs in eight months, and raised the prices they charged to consumers at the fastest rate since May 2011.

 

Article Source: http://www.rte.ie/news/business/2013/1105/484741-uk-services-activity/

FREE WEBINAR: “Want to Earn ￡3,000+ a Month Sourcing Property?” (within 6 months) Wed, 6th Nov, 8 PM, Click Here: tiny.cc/TW-VickiWusche

Bank of England Watches for Possible Property Bubble

This article by Huw Jones and William Schomberg of Independent.ie on September 26th, 2013 shows how Bank of England will keep a watchful eye for possible dangers of another property bubble.

The Bank of England said on today there was no immediate danger of a property bubble in Britain but that it was keeping a watchful eye out.

It also said it wanted more study on how vulnerable hedge funds that rely on borrowing would be to future interest rate rises.

The central bank's Financial Policy Committee (FPC) said Britain's housing recovery "appeared to have gained momentum and to be broadening" but was under control, based on gauges such as level of activity, debt costs and prices compared with incomes.

"In view of that, the Committee judged that it should closely monitor developments in the housing market and banks' underwriting standards," it said in a statement after its September 18 meeting. "The Committee would be vigilant to potential emerging vulnerabilities."

If any action was needed, it would be "proportionate to the risks and consistent with a graduated response."

House prices in Britain as a whole rose 3.3pc in the 12 months to July but jumped nearly 10pc in London, official data showed last week.

This has triggered some concern that BoE and government lending incentives are creating a housing bubble.

Stephen Lewis, chief economist at Monument Securities said the FPC - which is tasked with spotting risks to the economy from the financial system - was right to hold off for now. "It's probably the right thing at the moment. There is a lot of uncertainty at present about the housing market."

The housing recovery has been helped by government and Bank measures to free up mortgage lending. A new phase of the government's Help to Buy programme is to be launched in January.

Governor Mark Carney and finance minister George Osborne have shown no concern about the prospect of a housing price bubble, pointing to levels of activity in the property market that are below their pre-crisis peak.

But earlier this month, a group representing British property surveyors called on the Bank to take measures to slow mortgage lending if national house price growth exceeds 5pc a year.
Ed Miliband, leader of Britain's Labour opposition party, said this week that if he wins election in 2015 he would more than double the number of new homes built annually to 200,000 by 2020 to ease a shortage that has helped to push up prices.

FOCUS ON HEDGE FUNDS

In June, the BoE ordered an investigation into the vulnerability of Britain's financial institutions and borrowers to higher interest rates when central banks around the world start to wean their economies off massive stimulus.

The FPC said in its statement on Wednesday that a moderate rise in long-term interest rates did not pose an immediate threat to major banks and insurance companies and so far "had not led to dislocations in market functioning or significant impact on financial institutions."

However, levels of leverage within hedge funds, which could make them vulnerable to a sharp rise in borrowing costs, "needed to be looked at more closely," the statement said.

The Financial Conduct Authority, which is represented on FPC, said it asked a number of hedge funds during the summer about their preparedness for changes in interest rates following the June FPC meeting and as part of routine supervisory work.

The FPC's wider review of rate hikes would continue by looking at what impact "more significant stresses" would have and how any impact would ripple through the financial system.

The FPC said it will publish on October 1 a discussion paper on the design of a new framework for stress testing banks.

Article Source: http://www.independent.ie/business/bank-of-england-is-watching-for-signs-of-uk-property-bubble-29609879.html