Rate rise risk grows as services lead charge
A surprise growth spurt from the biggest chunk of the UK economy in March brought the threat of interest rate hikes closer today.
Services firms expanded their business at the fastest pace in more than a year during the month, the latest Chartered Institute of Purchasing and Supply/Markit activity survey showed.
The index, where a score over 50 signals growth, leapt from 52.6 to 57.1, confounding City expectations of much more sluggish growth.
The recovery signals come ahead of the Bank of England's latest rate-setting meeting this week, where pundits unanimously expect the Bank to hold rates at their record low 0.5%. Earlier, construction and manufacturing registered higher-than-expected growth, with Markit suggesting first-quarter growth of 0.8% on the back of its surveys. Deutsche Bank chief economist George Buckley said: "This certainly raises the risk of a near-term move. The three purchasing manager indices are now in rate hike territory."
The figures continue the strong run from services firms after official figures showed a bounceback in January from December's snow. Financial markets are pricing in a one-in-five chance of a rate rise from the Bank this week, but an 80% chance of a May move.
There was gloomier news from the Organisation for Economic Co-operation and Development as it forecast UK growth would lag its G7 rivals, except stricken Japan, between April and June.
It predicts quarterly growth of around 0.2% in the second quarter, well below the 0.7% pencilled in across the rest of the G7 nations over the same period.
