* UK July services PMI hits 8-month high of 59.1
* Strong orders but little sign of price pressure
* Services growth lifts composite PMI to 3-month high
* GRAPHIC: PMI vs GDP: link.reuters.com/nap74s
(Writes through with market reaction and economist comment)
By David Milliken
LONDON, Aug 5 Britain's services industry grew
last month at the fastest pace since November, raising the
chance that the rapid economic recovery will continue for the
rest of the year and potentially bringing forward a rise in
The monthly Markit/CIPS purchasing managers index for the
services sector beat economists' expectations and contrasted
with a mostly downbeat recent string of economic data.
A similar survey of manufacturing hit a one-year low last
week, but the rebound in services took the composite PMI for the
private sector as a whole to a three-month high.
This may encourage the Bank of England to rethink a
prediction made in May that the economy would slow slightly in
the second half of 2014.
The British central bank publishes new forecasts next week,
and some economists said the data could prompt one or two
policymakers to back a rate rise at this week's policy meeting.
The BoE will announce its rate decision on Thursday although a
breakdown of how policymakers voted will not be available until
minutes of the meeting are published later in the month.
"The pick-up in the composite PMI somewhat increases the
chances that the Monetary Policy Committee decides to raise
interest rates before the end of the year, and may even produce
a split interest rate vote (this week) for the first time since
July 2011," said Samuel Tombs at Capital Economics.
Expectations rates might rise this year got a boost in June
when BoE Governor Mark Carney said markets had underpriced the
risk of higher borrowing costs but later faded due to mixed
recent data and more equivocal remarks on policy by the Bank.
Economists polled by Reuters last week did not expect rates
to rise until the first three months of 2015.
Sterling rose and British government bonds led euro zone
debt lower on Tuesday after the services data, however, as
traders bet again on an earlier BoE rate move.
July's services PMI reading of 59.1 comfortably beat
economists' forecasts of a small rise to 57.9 from the 57.7
recorded in June. The composite PMI rose to a three-month high
of 59.1 from 58.4 in June.
The equivalent survey in the euro zone also showed an
increase in growth, though at a slower rate.
Chris Williamson, chief economist at Markit, which compiles
the PMI, said the numbers were consistent with Britain's economy
continuing to grow at a quarterly rate of 0.8 percent, well
above its long-term average 0.5-0.6 percent.
The economy grew by 3.1 percent in the year to July,
extending a surprisingly strong recovery from a deep recession
and years of stagnation caused by the 2008 financial crisis.
The National Institute of Economic and Social Research, a
leading think tank, said Britain's recovery was more entrenched
and it expected the economy to grow 3.0 percent this year, up
from 2.9 percent in its previous forecast.
Markit's Williamson said the strong PMI did not imply the
BoE should raise rates soon, with prices in the services sector
barely rising. "An absence of inflationary pressures means there
is still a strong case for any tightening of policy to be
delayed until 2015," Williamson said.
Strikingly low wage growth despite record employment is also
widely seen staying the BoE's hand.
Services growth was helped by new orders and investment and
hiring slowed only slightly from June's record high. Firms'
confidence about the future was down slightly at 71.2, an
eight-month low, although it was still high by historic
The PMI survey covers private-sector services firms
excluding retailers, and represents almost half of the economy.
(Reporting by David Milliken; Editing by Catherine Evans)