Powerhouse Service Sector Driving UK Economy Back to Growth

Growth in the limp UK economy is accelerating as both business optimism and output slowly builds, according to two leading forecasters.

The International Monetary Fund (IMF) and National Institute for Economic and Social Research (NIESR) both reported an improving picture for UK growth.

NIESR's monthly GDP estimate showed the UK economy grew by 0.6% in the three months to June, following a 0.3% expansion in the first quarter. Its report said the increased momentum was "largely due to the performance of the private service sector."

IMF economists upgraded their UK growth outlook for 2013 to 0.9%, having slashed it previously to 0.6%, the first time it has raised its forecast for the country in more than a year.

However, at a global level, the IMF cut its growth forecast by 0.2% to 2.1% for the year, citing "weaker domestic demand and slower growth in several key emerging market economies, as well as a more protracted recession in the euro area."

The forecasts follow a positive series of data compiled by research firm Markit from surveys of purchasing managers in the private sector across manufacturing, construction and services.

Growth in Britain's service sector, the driving force of the economy which represents three quarters of GDP, soared to its highest level in over two years during June, reported Markit.

Manufacturing activity also expanded at the fastest pace in more than two years in June. The troubled construction sector expanded for the second month in a row during June, and at its fastest pace in over a year.

"Surging growth in the service sector accompanied a resurgent manufacturing sector and modest growth in construction in June for an increasingly broad-based economic upturn," said Chris Williamson, chief economist at Markit.

"Growth in services and manufacturing is now the strongest for just over two years, while the construction sector is enjoying the fastest pace of expansion for over a year."

Markit said that, taken in combination, its survey data suggests 0.5% growth in the second quarter.

On the back of improving data in the UK economy, which avoided a triple dip recession at the beginning of 2013, and a general feeling that the worst of the eurozone crisis has passed, big British businesses are growing hungrier for expansion.

A survey of chief financial officers (CFOs) at FTSE 100 and FTSE 250 firms, conducted by consultancy giant Deloitte, found that 45% of respondents think it is time to take more risk on their company's balance sheets. The survey shows that risk appetite among CFOs is now at the highest level in six years.

"Expansion is back on the agenda for many businesses with expectations for hiring and investment back to levels not seen since early 2011 when the world seemed set for recovery," said Ian Stewart, chief economist at Deloitte.