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UK Service Sector Logs Fastest Growth In 5 Years

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The UK service sector logged its strongest growth in five years in July as the phased reopening of business operations lifted corporate and household spending, final data from IHS Markit showed Wednesday.

The final IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers' Index rose to 56.5 in July from 47.1 in June. The flash score was 56.6.

The index has risen in each month after reaching a survey-record low of 13.4 in April, but the latest reading was the first to exceed the neutral 50.0 threshold since the pandemic began.

The composite output index, which combines the manufacturing and services, improved to 57.0 in July from 47.7 in June. The flash score was 57.1.

The reading signaled the fastest growth in the private sector since June 2015. In the manufacturing sector, output growth was the strongest since November 2017.

In the service sector, respondents reported higher business activity due to the easing of measures taken to curb the spread of the coronavirus. New business volume increased for the first time in five months. However, international travel restrictions contributed to a sustained reduction in new export sales.

Backlogs of work in the service sector dropped again in July. A lack of pressure on business capacity and weaker-than-expected demand resulted in lower staffing numbers.

Further, the survey showed that business expectations among service providers rose further in July, with optimism reaching a five-month high.

Finally, average cost burdens increased at a strong pace in July, but intense competition for new work meant that service providers' output charges were broadly unchanged since the previous month.

While the latest survey data provide a number of positive signs that the UK economy is back in expansion mode, the weakness of the employment figures reported in July is clearly a cause for concern and likely to hold back the longer-term recovery in business and consumer spending, Tim Moore, economics director at IHS Markit, said.

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