Britain leads Europe’s improving economy in July

Stronger 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.

Today’s purchasing managers’ indexes, surveying thousands of firms worldwide, showed the UK services sector expanded at its fastest pace in over 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.

Meanwhile, new figures from the US show that service firms there expanded last month at the fastest pace since February, fueled by a jump in new orders and stronger business activity.

The Institute for Supply Management’s index of service-sector growth rose in July to 56, up from 52.2 in June.

The increase is a hopeful sign for businesses that employ 90% of the US workforce and suggests that weak economic growth could rebound in the second half of the year.

Rebounding UK Index hits its highest level since 2006

The Markit/CIPS services PMI for the UK 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 signal expansion in a sector.

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

Analysts said that along the lead seen in the construction PMI and the pretty solid manufacturing PMI, all indicators are suggesting the UK recovery is really gaining pace now.

But that can not yet be said of the euro zone, with some of its largest constituents like Spain and Italy still languishing in recession. However, 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% 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,” analysts said.

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.

Economists expect the US ISM non-manufacturing survey will rise to 53 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.

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