Economy set to bounce back after service sector activity hits three-month high

Britain's economy is on course to rebound from a snow-hit start to 2018 after activity in the dominant services sector jumped to a three-month high in May.

The closely-watched Markit/CIPS services purchasing managers' index (PMI) showed a reading of 54 last month, up from 52.8 in April.

A reading above 50 indicates growth.

The latest reading is the highest since February and comes after firms in the services sector enjoyed a bounce-back after the Beast from the East disruption in the first quarter, according to the survey.

Markit said the services data, which follows recent surveys from the manufacturing and construction sectors, suggests the economy is set to grow by between 0.3% and 0.4% in the second quarter, up from a paltry 0.1% in the first three months.

The data fuelled expectations for the Bank of England to rekindle its plans to hike interest rates, with economists saying an increase from 0.5% to 0.75% was "firmly on the table" for August.

Sterling lifted 0.5% to 1.34 US dollars and 0.4% to 1.14 euros after the services PMI data.

But the survey also revealed ongoing uncertainties over Brexit, which is weighing on new work orders and confidence among firms in the services sector - which accounts for around three-quarters of gross domestic product (GDP) in the UK.

Chris Williamson, chief business economist at survey compiler IHS Markit, said: "The improvement in service sector activity adds to evidence that the economy is on course to rebound in the second quarter but, like the earlier manufacturing and construction surveys, raises questions about the outlook."

"The signs of economic growth rebounding in the second quarter will likely up the odds of the Bank of England hiking interest rates again in coming months, likely August, but with the forward-looking indicators suggesting that the economy could relapse, a rate rise is by no means assured," he added.