Markit's composite Purchasing Managers' Index (PMI) for the whole of the second quarter came in stronger than in the first quarter, suggesting gross domestic product (GDP) should continue to rise at a strong pace into the second half of this year.
Employment in all the three major pillars of the economy surged in June, Markit's PMI surveys showed. In manufacturing, job creation hit a 39-month high driven primarily by small and medium sized businesses.
Employment in construction rose the most since Markit's surveys began in April 1997 while wage growth in the services sector, the largest segment of economy, rose substantially in June with staffing levels posting an "unprecedented rise," with over 27% of the firms recording an increase in staff numbers, according to Markit.
Based on the composite PMI, Markit now expect the economy to grow by 0.8% in the second quarter, which would be unchanged from the first quarter's growth. The first official estimate of second-quarter GDP is due later in July.
On the Bank of England's (BoE) reaction to robust expansion, Chris Williamson, chief economist at Markit, said today "the persistent strength of the PMI surveys raises the likelihood of policymakers deciding that a pre-emptive rise in interest rates later this year is warranted, especially given the speed at which the labour market is improving."
On the labor market, Williamson said "a jobless rate below 6% is achievable by the end of the year if anything like the current pace of job creation is sustained in the coming months."
Even though its estimates tend to be more upbeat, the BoE said in its June Monetary Policy Committee (MPC) minutes it "continued to expect growth of 0.8% in the initial estimate of Q2 GDP, with a final estimate of 0.9%. The strength of the business surveys suggested upside risks to Bank staff's expectation that quarterly growth would ease back to 0.7% in Q3."
The MPC members also said they were surprised market participants put only around a 15% chance on a rise in Bank Rate by the end of 2014, given such strong macro fundamentals coming in recently.
Commenting on Markit's June surveys, Berenberg chief UK economist and a former BoE official Robert Wood said today "the UK is experiencing a balanced strong expansion that should result in a rate hike in November this year."
"There is little sign that growth will slow from this rapid clip with forward looking aspects of the surveys remaining strong … while booming employment strengthens the case for a November rate hike," Wood added.
Broadening of the economic recovery from debt-driven household consumption towards more production and business investment should therefore increase further pressure on the BoE to start reconsidering the current, ultra loose, monetary policy.
In his testimony before the Treasury Select Committee (TSC) late June, the BoE Governor Mark Carney reiterated that the precise timing of the first increase of the base interest rate will be "data-driven" after saying during his Mansion House speech that the rate hike may come earlier than the markets had been expecting.
Markets and the BoE watchers will therefore be very closely watching business surveys and other major macro fundamentals for hints on the central bank's next moves. Sterling is also bound to behave in an excessively sensitive mode in the upcoming months, driven mainly by the BoE's data-driven policy.
A majority of market participants now price in the first rate hike for the first quarter of 2015, although bets have been piling up on even an earlier first increase, sometime closer towards the end of 2014.