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August 6, 2009

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UK economy shows some life

ACTIVITY in Britain's services sector grew at its fastest rate in nearly a year and a half during July, a closely watched survey showed yesterday.

The survey result came as the Bank of England's rate-setters begin two days of talks to decide on whether to pump more money into the economy.

The Chartered Institute for Purchasing and Supply said its monthly purchasing managers' index for the services sector rose to 53.2 in July from 51.6 in June.

The rise was bigger than expected and reinforces hopes the British economy may be growing after its deepest recession since World War II.

A reading above 50 indicates expansion and the greater the difference from 50, the greater the expansion.

July's reading was the highest since February 2008 and was largely fueled by an increase in new business.

The services sector is key to whether the British economy can start growing again as it accounts for about two-thirds of total economic activity.

An equivalent survey earlier this week also indicated that the manufacturing sector, which accounts for about 15 percent of the economy, was growing as well.

The monthly PMI jumped to 50.8 in July from 47.4 in June, largely as a result of a sharp pickup in new orders.

Official figures last Thursday provided clear evidence that the surveys may be right.

The Office for National Statistics said then that industrial production, which includes energy and mining output as well manufacturing, rose 0.5 percent in June from the previous month.

"The latest UK data on both services and manufacturing suggest that a decent recovery is continuing across the economy," said Vicky Redwood, economist at Capital Economics.

All this will likely be greeted with relief at the Bank of England, which has taken aggressive action, such as cutting its key interest rate to a record low 0.5 percent and using its reserves to expand money supply, to combat the long-running recession.

Analysts say the bank may choose to hold off from further monetary expansion now that there are signs the economy is on the mend, as the measures also carry risks of inflation down the road if carried too far.

The European Central Bank is also forecast to keep its interest rate unchanged today at its record low of 1 percent and is not expected to announce any new unorthodox measures to get the euro zone economy going again even though surveys continue to point to a deep recession in the 16 countries that use the euro.


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