Service sector bounces back

GROWTH in Britain's dominant service sector stepped up a gear last month, easing fears about the economy but denting hopes of an interest rate cut this week.

Boosted by new business and higher levels of enquiries, the closely-watched purchasing managers' index from the Chartered Institute of Supply rose for the first time in three months.

The headline activity index registered 55.8 in June, up from May's 55.1 and well above the 50 'no-change' level, indicating the sector is accelerating. Firms expect the improvement to be maintained.

The survey, inadvertently released a day early by Reuters, said more than twice as many companies reported a rise in activity than those that reported a fall.

The hotels and restaurants and personal services sectors enjoyed the strongest growth. In contrast, IT and computing and financial intermediation are struggling.

The news will alleviate concerns that the consumer slowdown hitting the High Street is spreading to the service sector. But it will also dash hopes that the Bank of England will lower borrowing costs when its monetary policy committee meets this week.

George Buckley, economist at Deutsche Bank, said: 'We feel these figures will be enough to stay the Bank's hand at this week's meeting on Thursday, and we expect it instead to wait until August before trimming rates by a quarter-point.'

Rates have been at 4.75% since last August.