Investing.com – Activity in the U.K. service sector unexpectedly accelerated in April, hitting a high for the year and bolstering optimism over the British economy as the sector makes up approximately 80% of gross domestic product, industry data showed on Wednesday.
In a report, market research group Markit said the seasonally adjusted IHS Markit/CIPS services purchasing managers’ index (PMI) increased to 55.8 last month from a reading of 55.0 in March. That was its ninth consecutive month of expansion and its highest level since December 2016.
Analysts had expected the index to inch up to 54.5.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
Apart from the sharpest rise in business activity since December, Markit indicated that new work and employment levels also expanded at the fastest pace so far in 2017.
With regard to inflation, the research group said that average prices charged saw their fastest increase since July 2008.
IHS Markit chief economist Chris Williamson pointed out the service sector data combines with the positive surveys for both the manufacturing and construction sectors pointed to economic growth of 0.6% at the start of the second quarter.
“While we expect consumer spending to slacken in coming months, with the April survey highlighting continued weakness in sectors such as hotels, restaurants and other household-facing businesses, there’s good reason to believe that at least 0.4% GDP growth can be achieved in the second quarter,” he said.
Williamson noted with regard to inflation that the price increases were widely attributed to the need to past increased costs, widely related to more expensive imports via the weaker pound, on to consumers.
This expert interpreted the data as leading to a further increase in consumer price inflation.
“The strengthening of growth and the upturn in prices will bolster calls for higher interest rates,” Williamson remarked.
“But weak growth in the consumer sector remains a concern, and is something which could intensify in coming months as consumer prices rise further,” he concluded.
Following the report, GBP/USD was trading at 1.2888 from around 1.2891 ahead of the release of the data, EUR/GBP was at 0.8474 from 0.8465 earlier, while GBP/JPY traded at 145.44 compared to 145.42 previously.
Meanwhile, European stock markets traded higher, with London’s FTSE 100 gaining 0.29%. The Euro Stoxx 50 rose 0.65%, France's CAC 40 traded up 0.71%, while Germany's DAX advanced 0.57%.