London: Rocketing British business led the way in Europe’s slowly improving economy in July, according to surveys that suggested the euro zone’s lengthy recession may be nearing an end.
Monday’s purchasing managers’ indexes (PMIs), surveying 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 euro zone, businesses achieved a first, albeit faint rise in activity for 18 months, inspired by a pick-up in manufacturing.
Although it will take another couple of 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.
A report due later on Monday from the US, currently the lone driver of global growth, is expected to show growth picked up in non-manufacturing companies.
World shares edged up on Monday and the dollar softened after the data, helped by a growing conviction 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 December 2006 and a bigger gain than forecast by any of the economists polled by Reuters. Readings above 50 denote expansion.
Signs of recovery also pose a challenge for the Bank of England. On Wednesday, Governor Mark Carney is due to say whether the BoE 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,” Clarke said.
That can’t yet be said of the euro zone, with some of its largest constituents like Spain and Italy still languishing in recession.
But German business activity rebounded in July, while the downturns in the euro zone’s next three biggest economies - France, Italy and Spain - eased.
Markit’s composite euro zone PMI broke above the 50 growth threshold for the first time since January 2012, hitting 50.5 in July from 48.7 in June, and revised up a tick from a preliminary reading.
Retail sales data for May showed a 0.5 per cent fall month-on-month, although that was a little better than expected, while investor sentiment in the bloc brightened in August.
“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, chief euro zone economist at ING.
These upbeat surveys followed a mixed lot from Asia, where Chinese services companies saw modest growth in July, but activity in their Indian peers slipped for the first time in nearly two years.
The HSBC/Markit Purchasing Managers’ Index for the services industry, which ranges from hotels to banks, stood at 51.3 in July, unchanged from June and just a whisker above a 20-month low of 51.1 struck in April.
“China’s service sector has stabilised at a relatively low level of growth,” said Qu Hongbin, an economist at HSBC.
“But profit margins continue to be squeezed. Without a sustained improvement in demand, services growth is likely to remain lacklustre, putting downside pressures to employment growth.” Economists expect the US ISM non-manufacturing survey, due at 1400 GMT, will rise to 53.0 for July from 52.2, signalling a faster recovery after some mixed jobs data on Friday.
US employers slowed their pace of hiring in July, but the jobless rate fell anyway - ambiguous signals that could make the US Federal Reserve more cautious about drawing down its huge economic stimulus programme.