Britain’s economy looks to have picked up speed after a winter slump, data showed on Tuesday, giving the Bank of England some of the reassurance it needs to get back to its plan to raise interest rates.
British services firms grew more quickly than expected in May although the approach of Brexit held back many companies.
The IHS Markit/CIPS services purchasing managers’ index (PMI) hit a three-month high of 54.0 in May, above a median forecast of 53.0 in a Reuters poll of economists and up from 52.8 in April.
Markit’s chief business economist, Chris Williamson, said the recovery made it more likely the BoE - which wants to be sure the slowdown in a wintry start to 2018 was temporary - would raise rates for only the second time in over a decade.
“But with the forward-looking indicators suggesting that the economy could relapse, a rate rise is by no means assured,” he said in a statement.
BoE rate-setter Silvana Tenreyro said on Monday much of the weakness in Britain’s economy in early 2018 would probably prove temporary, but the timing of when rates would next go up remained an open question.
Sterling was heading for its biggest daily gain against the US dollar in seven weeks as the PMI revived bets on a BoE rate hike in August, when it updates its economic forecasts.
Adding to the recovery signs, separate data showed shoppers ramped up spending in May including on cars.Britain’s economy looked set to grow by 0.3 or 0.4% in the April-June period, a jump from quarterly growth of just 0.1% in the first three months of 2018, Markit said.
