2012.06.07 12:05:05 UK Services Sector Growth Holds Steady

Growth in the U.K.'s dominant service sector held steady in May with activity continuing to expand at a solid rate, a survey showed Thursday, increasing the likelihood that the Bank of England will leave monetary policy unchanged when it announces its June decision later in the day. The services purchasing managers' index was unchanged at 53.3 in May, the survey from data provider Markit and the Chartered Institute of Purchasing and Supply showed. A reading above 50 indicates activity in the sector is expanding. The index has now registered readings above 50 for 17 consecutive months. Sterling rose against the dollar following the stronger-than-expected data, with the pound rising to $1.5471 from $1.5448 before its release. The data come just hours ahead of the Bank of England's Monetary Policy Committee making its policy decision public at 1100 GMT, with the robust reading likely to strengthen the case for monetary policy to remain unchanged. A majority of economists predict the MPC will leave its benchmark interest rate at 0.5% and the ceiling for its asset-purchase program at 325 billion pounds ($503 billion). But a slump in the manufacturing PMI last week and signs of fresh distress in the euro zone have shortened the odds the central bank may embark on another bout of bond buying. The manufacturing PMI, published June 1, showed activity in the sector shrank to its lowest level in three years in May, as companies cut back production in response to flagging demand for their goods both at home and abroad, while the construction PMI showed the sector expanded at a slower pace for the second consecutive month. "On the one hand, the firmer services and construction data suggest that the situation hasn't moved on significantly since the May meeting. But on the other, the dire manufacturing results and the deterioration in confidence imply that further policy support is in order," said Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club. "It will be a finely balanced decision, which could go either way." The service sector is the powerhouse of the U.K. economy, making up 76% of the country's gross domestic product. But its performance this year has been hampered by the government's spending cuts, economic uncertainty arising from the euro-zone crisis, and consumers' reluctance to spend due to the squeeze on their incomes from weak wage growth and high inflation. Official figures showed the sector's performance in the first quarter was disappointing, eking out growth of just 0.1%. Overall, the U.K. economy shrank 0.3% in the first three months of the year, sending the country back into technical recession. The detail of Thursday's survey showed the rate of new business accelerated to a four-month peak in May. But worries over public-sector spending cuts and the impact of the euro-zone crisis undermined sentiment, with confidence weakening to the lowest since last December. The British Retail Consortium's monthly retail sales monitor, Thursday showed retailers received a much-needed boost in May as the sunny weather in the final week of the month enticed consumers to spend, lifting overall sales. The survey showed same-store sales--which exclude sales from shops that opened or closed during the preceding year--rose 1.3% on the year in May after falling 3.3% in April. Total sales, which includes sales at stores that have opened in the past 12 months, rose 3.4% on the year in May, compared with a decline of 1.0% in April. Meanwhile, U.K. house prices climbed in May, partly reversing a steep fall the previous month caused by the end of a property-tax holiday, a survey from mortgage lender Halifax showed Thursday. House prices rose 0.5% in May from April, following a 2.4% slump the previous month following the resumption of stamp duty being charged to first-time buyers. (Jason Douglas and Alex Brittain in London contributed to this report.) Write to Ainsley Thomson at ainsley.thomson@dowjones.com (END) Dow Jones Newswires June 07, 2012 06:05 ET (10:05 GMT)