British businesses enjoyed an unexpectedly strong start to the year, marked by faster hiring and rising new orders that bode well for economic growth in early 2015. A monthly survey by Markit/CIPS of businesses in the dominant services sector suggested the economy as a whole is growing at a rate slightly above the 0.5 percent recorded in the final three months of 2014.
That is good news for Prime Minister David Cameron, who hopes Britain's economic recovery will persuade voters to return him to power in a national election on May 7. The services Purchasing Managers' Index (PMI), published on Wednesday, rose to 57.2 in January from a 17-month low of 55.8 in December, topping all forecasts in a Reuters poll and staying well above the 50 mark denoting growth. Services comprise the vast bulk of Britain's private sector economy.
British businesses experienced faster growth than their euro zone peers, while the fall in oil prices dampened rising prices paid by services companies for goods and energy. "As the general election race hots up, increasing talk of political uncertainty hurting UK growth has been doing the rounds," said Rob Wood, economist at Berenberg. "But today's PMI suggests that a bull market in such talk is not translating into a bear market for business expansion."
Sterling edged up against the dollar and British government bond prices briefly extended losses as investors factored the signs of solid growth into their expectations for when the Bank of England will start to raise interest rates. Rates have sat at a record low of 0.5 percent for nearly six years. Official data has shown a reduced pace of job creation in recent months, even as the headline employment rate fell to its lowest level in more than six years, at 5.8 percent.