Housing boom boosts services sector

Britain's services industries grew for the third month in a row in May, with the biggest gains experienced by mortgage lenders, hotels and catering, although the increase in the pace of activity overall was modest and jobs growth was marginal.

Though all broad sectors of the services economy recorded an increase in demand, mortgage lenders in particular benefited from the recent buoyancy of the housing market. The Chartered Institute of Purchasing & Supply's monthly index of service sector activity registered 56.4 last month, up only slightly from 56.3 in April.

Competitive pressure to cut costs and improve efficiency held back the pace of jobs growth, however, and the extent to which companies were able to put up prices. Firms were only taking on extra workers where "absolutely necessary," said the CIPS.

David Coleman, economist at CIBC World Markets, said: "It's a bit disappointing - not so much in the headline numbers but some of the details. We've seen a deceleration in the employment index and the incoming new business index, which does suggest things may be slowing down for the next couple of months or so.

"One month's numbers don't make a new trend, but perhaps it's something to watch in the future."

It is still possible that the Bank of England's monetary policy committee will cut interest rates again from the current level of 5.25%, he added.

Richard Iley, an economist at ABN Amro, supported the point: "What has happened to sterling in recent months outweighs what any economic reports may claim.

"One more rate cut is inevitable, whether they do it this month or the next month is the only question."