UK business leads recovery in Europe

Rocketing British business led the way in Europe’s slowly improving economy in July, according to surveys that suggested the eurozone’s lengthy recession may be nearing an end.

Yesterday’s purchasing managers’ indexes (PMIs), which surveyed thousands of companies worldwide, showed the UK services sector expanded at its fastest pace in more than six years last month, topping even the most optimistic forecasts.

In the eurozone, businesses achieved a first, albeit faint rise in activity for 18 months, inspired by a pick-up in manufacturing.

Although it will take several months to work out if the region has really turned the corner, data company Markit, which compiles the PMIs, said there was cause for optimism.

Shares across the globe edged up yesterday and the dollar softened after the data, helped by a growing conviction that the US Federal Reserve will stick with its massive stimulus effort for a while.

But it was the boom among businesses in the UK, the world’s seventh biggest economy, that was most eye-catching.

“It’s another storming PMI,” said Victoria Clarke, economist at Investec.

The Markit/CIPS services PMI leapt to 60.2 in July from 56.9 in June, its highest level since Dec 2006. Readings above 50 denote expansion.

Signs of recovery also pose a challenge for the Bank of England governor Mark Carney, who is due to say tomorrow whether it will go ahead with a policy of ‘forward guidance’ aimed at keeping down bond yields by promising low rates while the economy remains fragile.

“Coupled with the lead that we saw in the construction PMI and the pretty solid manufacturing PMI, all those indicators are suggesting the UK recovery is really gaining pace now,” Ms Clarke said.

In the eurozone, some of its largest constituents like Spain and Italy still languish in recession. But German business activity rebounded in July, while the downturns in the eurozone’s next three biggest economies, France, Italy and Spain, eased.

Markit’s composite eurozone PMI broke above the 50 growth threshold for the first time since Jan 2012, hitting 50.5 in July from 48.7 in June.

Retail sales data for May showed a 0.5% fall month- on-month, although that was a little better than expected, while investor sentiment brightened.

“All in all, most figures published recently continue to confirm the expectation of a subdued and fragile recovery in the second half of 2013,” said Peter Vanden Houte, of ING.