By Daniel Hunter

UK service sector growth accelerated to its highest level since March 2011 during June as incoming new business rose at a rate unmatched for six years. The sharp increase in new business led to a marked rise in backlogs of work, and encouraged companies to take on additional staff to the strongest degree since August 2007.

Confidence regarding future activity was also retained, with expectations at their highest for 14 months. However, margins remained under some pressure as strong competition prevented companies from fully passing on higher cost burdens.

After accounting for seasonal factors, the headline Business Activity Index recorded 56.9 in June, up from May’s 54.9 and the highest reading for 27 months. Growth has now been recorded for six successive survey periods, and has continually improved throughout this sequence.

The principal driver of increased business activity during June was a rise in sales volumes. Panellists commented that market demand had improved in line with growing business confidence. Amid reports of increased marketing and new product releases, better weather also helped fuel new business growth which, in June, was the strongest registered by the survey for six years.

Capacity came under pressure from the sharp gains in new business during June. This was highlighted by a solid rise in backlogs of work, with growth the strongest seen since August 2007.

Backlogs rose in spite of the sharpest increase in staffing levels for just under six years. Extra staff were mainly taken on to service growing current workloads, with some companies also recruiting in anticipation of further growth.

“Surging growth in the service sector accompanied a resurgent manufacturing sector and modest growth in construction in June for an increasingly broad-based economic upturn. Growth in services and manufacturing is now the strongest for just over two years, while the construction sector is enjoying the fastest pace of expansion for over a year," Chris Williamson, Chief Economist at survey compilers Markit said.

“The buoyant picture for June means the economy is on course to expand by at least 0.5% in the second quarter, with more growth to come. New orders and job creation across all sectors are now rising at the fastest rates for almost six years, led by the vast services economy, boding well for robust growth momentum to be sustained as we move into the second half of the year.

“With growth this strong it’s hard to see how any of the members of the Monetary Policy Committee could make a case for further quantitative easing. Policymakers are likely to argue that any action could perhaps be better geared towards trying to ensure the upturn is fully sustainable, such as measures to further encourage bank lending and business investment.”

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