Business activity rises in July at fastest rate since late 2006

The UK service sector expanded at its quickest pace for over six-and-a-half years in July, as new business continued to rise strongly amid evidence of an improvement in market conditions.

This is among the key findings of the latest Markit/CIPS purchasing managers’ index for the UK services industry.

The seasonally-adjusted business activity index climbed to its highest reading since December 2006, posting 60.2, up from 56.9 in June. Readings above 50.0 have now been recorded for seven months in a row, with growth accelerating continuously throughout this period.

Supporting activity growth through 2013 has been continual gains in new business. July was no different, with sales rising at the strongest rate since November 2006. Underlying demand was reported to be stronger, with market conditions improving both at home and abroad. Good weather and a pick-up in the housing market provided further boosts to activity and sales during the latest survey period.

Strong growth of new business led to capacity pressures during July, as highlighted by the sharpest rise in backlogs of work since February 2000. Backlogs have now risen for four months in a row, and continued increases in work outstanding encouraged a further rise in employment. July’s survey marked the seventh month in succession that payroll numbers have increased, with the latest data showing a solid rate of growth that was little moved on June’s near six-year peak.

Employment also increased as part of business expansion plans, as confidence regarding future activity improved to its highest level for 15 months. Panellists are widely expecting the recent upturn in economic conditions to continue, with new product plans and geographical expansion also cited as reasons to be optimistic.