Buoyant figures point to solid expansion in British economy

The Purchasing Managers' Indices (PMI) for British service sector in September continued an encouraging run of figures, data published on Thursday showed. The headline PMI for services eased to 60.3 points from August's near-seven-year high of 60.5. A reading above 50 points indicates growth. "New orders continued to expand at a fast pace, boding well for activity in the coming months, and business expectations were also upbeat," said Barclays Economics Research economist Blerina Uruci. There was a significant gain in the employment index, which rose by 2.7 points to 53.3, and Uruci said this was "consistent with increasing employment at an above-average pace." The September payroll figures for construction and for manufacturing both recorded rises - in manufacturing at its fastest rate since 2011, and in construction at its fastest since 2007. The heightened pace of employment has a new significance for the British economy following the announcement in August by new Bank of England (BOE) governor Mark Carney that the central bank would closely watch unemployment levels and use them as a milestone for monetary policy change. Carney said that the then-rate of 7.8 percent needed to fall to 7 percent before the central bank would consider rate rises from the current historic low level of 0.5 percent. "This upward trend in employment growth, if sustained, could be problematic for the BOE's view that the economy can grow rapidly without the need to hire new workers and thus leading to a recovery in the UK's productivity," Uruci said. Howard Archer, chief UK and EU economist with IHS Global Insight, said that despite a marginal dip in the PMI from an 80-month high in August, it was still a "a hugely impressive survey indicating that services sector activity remained elevated in September thereby completing a strong third quarter." Archer said that healthy service sector activity played a key role in Britain's developing recovery through the first half of the year, and the robust purchasing managers' survey for September suggested that the services sector was highly likely to have made an even larger contribution to GDP growth in the third quarter. John Zhu, UK economist with HSBC Global Research, said the figures showed the dominant services sector was maintaining its strong pace of growth. "The employment component suggested a faster pace of hiring, but outstanding business increased at the fastest pace since February 2000. This suggests that the services sector is hitting capacity constraints even though employment is growing steadily, which is not a good sign for productivity," he added.