(Adds economist comments, sterling reaction)
By William Schomberg
LONDON May 6 Britain's dominant services sector
grew in April at its fastest pace so far this year, suggesting
the broader economy is picking up more speed and raising
questions about the Bank of England's determination not to raise
interest rates any time soon.
The pound jumped to its highest level against the dollar in
nearly five years after the Markit/CIPS survey came in much
stronger than economists had expected and showed companies were
"All the signs are that Britain is booming," said Michael
Saunders, an economist with Citi in London.
"The need for the current ultra-loose policy stance is
receding rapidly, in our view. Indeed, the current policy stance
may well - if sustained for much longer - start to create a
dangerous bubble mentality in housing and other assets."
The Organisation for Economic Co-operation and Development
also voiced its concern about Britain's rising house prices,
calling for more action to prevent a bubble.
The Bank of England holds a monthly rate-setting meeting on
Wednesday and Thursday. It is widely expected to start raising
borrowing costs only next year as it allows Britain's recovery
But a top BoE official last week raised expectations that
the Bank could take other steps as soon as next month in
response to the rise in house prices which reached nearly 11
percent last month.
The Markit/CIPS services purchasing managers' index
(PMI)rose to 58.7 in April from 57.6 in March, far above the 50
threshold for growth.
Economists taking part in a Reuters poll had expected an
SECOND-QUARTER SPEED UP?
Britain's economy grew at its fastest annual pace in more
than six years in the first quarter of this year.
"The UK economic recovery shows no signs of running out of
steam, and growth could even accelerate further in the second
quarter," said Chris Williamson, chief economist at PMI compiler
"The April numbers point to the economy growing by at least
0.8 percent again in the second quarter."
Britain is expected to grow faster than all the other Group
of Seven economies this year although it remains a touch smaller
than it was six years ago, before the financial crisis.
A composite index combining PMIs for manufacturing and
construction, plus the services sector, showed output across the
economy rose to 59.4 in April from 58.2 in March, back up to its
highest level since November.
Companies in the private sector took on staff at the fastest
rate in the survey's history, dating back to January 1998.
"The strength of the PMI's output and employment readings
suggest that the discussion among policymakers about when
interest rates will need to start rising will heat up,
especially when viewed alongside recent house price gains,"
Rob Wood, an economist with Berenberg bank in London who
used to work at the BoE, said he expected at least one of the
Bank's nine policymakers to break ranks and vote for a rate hike
by late summer.
He saw a 35 percent chance of a first hike in the fourth
quarter of this year, earlier than the second quarter of 2015
that the Bank pointed to in February. The BoE is due to publish
new economic forecasts on Wednesday next week.
Tuesday's survey showed little sign of price pressures in
the services sector, which accounts for more than three-quarters
of Britain's economy and includes firms ranging from major banks
to high street restaurants.
Growth in new work slipped a bit but rising confidence in
the outlook was not far off February's four-and-a-half-year
peak, helping to prompt companies to ramp up employment by the
most since last October, the survey showed.
(Writing by William Schomberg; Editing by Hugh Lawson)