LONDON: Britain’s large services industry grew last month at its fastest rate since October, a survey showed on Wednesday, prompting investors to increase bets that the Bank of England will raise interest rates next month.
After a weak first four months of 2018, the IHS Markit/CIPS services Purchasing Managers’ Index (PMI) rose to 55.1 in June, easily beating economists’ average forecasts in a Reuters poll of 54.0, unchanged from May’s reading.
June surveys this week for the smaller manufacturing and construction sectors also beat expectations.
Taken together, the three PMIs point to overall economic growth of 0.4 percent in the second quarter, double the pace of the first, IHS Markit said.
Sterling rallied and British government bond yields rose as financial markets priced in a greater chance that the Bank of England will raise interest rates to 0.75 percent from the 0.5 percent they have stood at for most of the past decade.
In May, the BoE postponed a widely-expected rate hike after the economy slowed more than forecast in the three months to March, due in part to unusually harsh winter weather.
High inflation and continuing deep uncertainty about the terms Britain’s departure from the European Union in March 2019 have acted as underlying drags on growth.
The central bank also said in May that in the event of a recovery, rates were likely to rise for only the second time in more than a decade as part of a gradual move away from the emergency stimulus program it rolled out during the financial crisis.
“These PMIs — the last before the Monetary Policy Committee finalize their August 2 decision — are consistent with a robust second-quarter rebound, and keep our call for an August hike on track,” Morgan Stanley economist Jacob Nell said.
Last month BoE chief economist Andy Haldane joined two other members of the BoE’s nine-strong Monetary Policy Committee in calling for a rate rise, and data was revised to show the first-quarter slowdown was less severe than first thought.
The BoE has forecast 0.4 percent GDP growth for the second quarter and also expects inflation to pick up in the coming months due to higher oil prices.
Wednesday’s survey backed up the BoE’s view, showing service firms contending with higher wage and fuel costs and overall input costs rising at the fastest pace since September 2017.
New business flowed in at the fastest rate in just over a year, with firms registering a boost to consumer spending from unusually warm weather.
But expectations among businesses for the next 12 months — during which Britain is due to leave the EU — were below their average for the years since the financial crisis, with Brexit-related uncertainty to blame, IHS Markit said.
Britain cannot yet count on a transitional EU trade deal for the period immediately after Brexit, which means firms cannot rule out border disruptions after March.
“Such a divergence between current and expected future activity stokes worries that the upturn is being fueled by short-term spending ... and likely masks a lack of longer-term business investment,” IHS Markit economist Chris Williamson said.
Euro zone PMI data on Wednesday showed businesses in the bloc at their gloomiest since late 2016, despite activity growing at its fastest in four months, reflecting concerns about a possible trade war with the US.
UK economy picks up speed, latest PMI data shows
UK economy picks up speed, latest PMI data shows
Gulf-EU value chain integration signals shift toward long-term economic partnership: GCC secretary general
RIYADH: Value chains between the Gulf and Europe are poised to become deeper and more resilient as economic ties shift beyond traditional trade toward long-term industrial and investment integration, according to the secretary general of the Gulf Cooperation Council.
Speaking on the sidelines of the World Governments Summit 2026 in Dubai, Jasem Al-Budaiwi said Gulf-European economic relations are shifting from simple commodity trade toward the joint development of sustainable value chains, reflecting a more strategic and lasting partnership.
His remarks were made during a dialogue session titled “The next investment and trade race,” held with Luigi Di Maio, the EU’s special representative for external affairs.
Al-Budaiwi said relations between the GCC and the EU are among the bloc’s most established partnerships, built on decades of institutional collaboration that began with the signing of the 1988 cooperation agreement.
He noted that the deal laid a solid foundation for political and economic dialogue and opened broad avenues for collaboration in trade, investment, and energy, as well as development and education.
The secretary general added that the partnership has undergone a qualitative shift in recent years, particularly following the adoption of the joint action program for the 2022–2027 period and the convening of the Gulf–European summit in Brussels.
Subsequent ministerial meetings, he said, have focused on implementing agreed outcomes, enhancing trade and investment cooperation, improving market access, and supporting supply chains and sustainable development.
According to Al-Budaiwi, merchandise trade between the two sides has reached around $197 billion, positioning the EU as one of the GCC’s most important trading partners.
He also pointed to the continued growth of European foreign direct investment into Gulf countries, which he said reflects the depth of economic interdependence and rising confidence in the Gulf business environment.
Looking ahead, Al-Budaiwi emphasized that the economic transformation across GCC states, driven by ambitious national visions, is creating broad opportunities for expanded cooperation with Europe.
He highlighted clean energy, green hydrogen, and digital transformation, as well as artificial intelligence, smart infrastructure, and cybersecurity, as priority areas for future partnership.
He added that the success of Gulf-European cooperation should not be measured solely by trade volumes or investment flows, but by its ability to evolve into an integrated model based on trust, risk-sharing, and the joint creation of economic value, contributing to stability and growth in the global economy.
GCC–EU plans to build shared value chains look well-timed as trade policy volatility rises.
In recent weeks, Washington’s renewed push over Greenland has been tied to tariff threats against European countries, prompting the EU to keep a €93 billion ($109.7 billion) retaliation package on standby.
At the same time, tighter US sanctions on Iran are increasing compliance risks for energy and shipping-related finance. Meanwhile, the World Trade Organization and UNCTAD warn that higher tariffs and ongoing uncertainty could weaken trade and investment across both regions in 2026.
