U.K. Services Prop Up Economy on Better-Than-Forecast Growth

(Bloomberg) -- U.K. services activity grew more than expected in February, supporting economic growth and keeping alive the prospect of an interest-rate increase within months.

IHS Markit's Purchasing Managers Index for the biggest part of the economy jumped to 54.5 -- a four-month high -- from 53 in January. That's well above the 53.3 reading forecast by economists in a Bloomberg survey. The composite PMI also rose, though only to a two-month high.

The report showed that new business picked up for a second month and the backlogs of business increased, which bodes well for the coming months. There was also a warning about skills shortages from service companies.

While Markit's manufacturing index for February declined, construction performed better, and it said the surveys show a “steady pace” of economic expansion is being maintained. It estimates growth of 0.4 percent this quarter, matching the rate of the final three months of 2017.

BOE Governor Mark Carney has said that more interest-rate increases will be needed to keep inflation in check, though he's refused to commit to any specific timing. Traders are pricing in a high chance of a hike in May, and some economists say there may even be two moves this year. BE economists say while a hike in May can't be ruled out, they expect the central bank to wait until August.

--With assistance from Harumi Ichikura Mark Evans and Jill Ward

To contact the reporter on this story: Fergal O'Brien in London at fobrien@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Brian Swint

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