UK economy picks up speed as service sector growth hits eight-month high - as it happened

All the day's economic and financial news, as Britain's services companies report that activity rose at a faster pace in June

• Latest: UK service sector PMI beats forecasts
• UK economy may have grown by 0.4% in last quarter
• Eurozone growth also picks up, estimated at 0.5% in last quarter

Earlier:

• Introduction: Tariffs come in on Friday
• Stocks fall in China again

2.00pm BST

With this, we are closing the blog for the day. Thank you for all your comments, and good-bye - we will be back tomorrow.

1.36pm BST

Copper has fallen to a new nine-month low ahead of the implementation of trade tariffs by China and the US on Friday, which could hit demand for the industrial metal.

Benchmark copper on the London Metal Exchange slipped 0.6% to $6,450 per tonne, the lowest since September 2017.

Trump is not fostering global trade. There is scrutiny about the export side of the market in terms of copper-containing household goods or electronics being shipped out of China and we believe that will stay with us at least until US mid-term elections in November.

1.27pm BST

Let's return to trade wars. "Trade wars are good and easy to win", so says Trump who last weekend railed against the EU for being as "bad as China" on trade practices, writes Michael Hewson, chief market analyst at CMC Markets UK.

The rhetoric over global trade has been ramped up in recent weeks. Hewson adds:

The decision by the US to raise tariffs on imports of steel and aluminium may well protect US jobs in this particular area but it will also raise costs in the areas of the US economy that use these metals, like auto, construction and manufacturing.

This will likely mean higher prices and higher inflation which in turn will hit the US consumer which at the moment, despite a tight labour market is only seeing modest wage growth. This would suggest that in seeking to protect US industry from cheap imports domestic prices could well rise causing US businesses to shed staff to cope with higher costs. In 2002 the Bush administration adopted similar measures on steel however they were abandoned after 18 months as a raft of US companies in related industries went bust as costs increased.

This raises the prospect of making a bad situation worse with consumers likely to bear the brunt, and while one can sympathise with the fact that the US is behaving irrationally, surely the best way to deal with the US is to play the game a different way.

Tit for tat responses rarely end well, with the reactions to Smoot Hawley in the 1930's being used as a historical precedent, as rising costs impacted on domestic consumers. Furthermore, there are significant anomalies on how the EU levies tariffs on US imports, which suggests that President Trump has a point about some of the EU's trade policy.

1.10pm BST

Earlier today, it emerged that a former Rio Tinto executive has been released from a Shanghai prison, after serving eight years in jail following a 2010 conviction for corruption and stealing commercial secrets.

Hu, an Australian citizen and the former head of the mining company's China iron ore business, was originally sentenced to 10 years in jail as tension flared between China, the world's top user of iron ore, and its biggest supplier, Australia. Fired by Rio in the aftermath, Hu is expected to return to Australia.

Related: Stern Hu: Australian former Rio Tinto executive released from Chinese jail

12.54pm BST

Here's another comment on the UK services data released this morning, from Malcolm Barr at JPMorgan. The stronger-than-expected reading, which points to GDP growth of 0.4% between April and June, coupled with a pickup in inflationary pressures has cemented the view among City economists that the Bank of England will hike interest rates next month.

The Markit/CIPS PMI saw the business activity reading climb to 55.1 in June, taking it back in line with the average reported since the series began in 1996. The employment component moved sideways at close to average levels, while business expectations were little changed, sitting toward the bottom end of the range seen since the Brexit referendum in 2016.

Taken as a whole, the business survey data for June lend more weight to the idea that the weakness in growth reported for 1Q was temporary: our version of the composite PMI has recovered to sit slightly above its average, having been a couple of points below it in March. Indeed, the weakness in the reported IP data through to April is looking increasingly like an outlier in the data. We continue to look for the MPC to raise rates in August, and see the dataflow and recent MPC commentary as raising confidence in that view.

12.00pm BST

Here's the statement in full from Beijing's finance ministry, courtesy of Reuters.

The Chinese government's position has been stated many times. We absolutely will not fire the first shot, and will not implement tariff measures ahead of the United States doing so.

China has already made preparations.

As long as the United States issues a so-called tariff list, China will take necessary measures to firmly protect its legitimate interests.

11.41am BST

China has denied that it will fire the first shot in an escalating trade dispute with the US.

Beijing's finance ministry said in a statement it would not implement its tariffs on US goods before Washington's tariffs on Chinese imports take effect, according to Reuters.

11.31am BST

Here our story on the UK outlook:

Related: UK economic growth bounces back as services sector expands

11.29am BST

A stronger-than-expected UK services reading, which suggests an improved growth outlook for Britain, has helped the pound this morning. Sterling is extending gains against the euro, rising 0.4% to 88.01p.

11.22am BST

Jennifer McKeown at Capital Economics said about the eurozone numbers:

This is a sign that at least some of the weakness in the first quarter was temporary and at least suggests we are not embarking on the start of a sharp slowdown.

There has been some stabilisation in the surveys if nothing else. That will reassure the ECB that a gradual normalisation of policy is warranted.

11.19am BST

Here is our full story about the impending trade war between Beijing and Washington.

Related: China to impose $34bn tariffs before the US as trade dispute escalates

11.18am BST

Over in the eurozone, it's a similar story. Business activity picked up in June, according to the latest PMI reports, making it easier for the European Central Bank to tighten policy - although it should be noted that confidence among companies declined to its lowest level since late 2016.

The ECB has already set out plans to end its bond buying programme by the end of the year, dismantling the economic stimulus a decade after the eurozone's economic downturn started. However, interest rates are likely to stay on hold for quite some time, and ECB president Mario Draghi might leave office in October 2019 without having raised rates once during his eight-year term.

10.33am BST

Markit's PMI reports suggest that UK companies grew rather faster in June than in March, when snow was dragging the economy back.

Jacob Nell of Morgan Stanley says they are "consistent with a robust rebound" in the second quarter of 2018:

10.20am BST

ING economist James Smith also spies a UK interest rate hike on the horizon....

Just like the manufacturing and construction indices, the latest UK services PMI has beaten expectations. At 55.1, it now stands at the highest level since October, and despite the ongoing uncertainty surrounding Brexit, new orders are rising at the fastest rate in over a year too.

This, much like the recent data emerging from the retail sector, suggests that the economy is having a better ride in the second quarter than in the first - and for the Bank of England, this will be put a fairly big tick in the August rate hike box

10.18am BST

The jump in UK service sector growth has helped the pound to shake off its early losses.

Sterling has crept back over $1.32, having dropped to $1.317 earlier, as traders conclude that an August interest rate hike is now a little more likely.

The Services PMI print today concluded a trifecta of phenomenal PMI figures from the UK this month, posting 7-month highs at 55.1. The bullish figures from the Services, Construction and Manufacturing sectors, along with GDP beating estimates last week, prove the UK economy is gaining momentum once again.

As a result, the likelihood of the Bank of England raising rates this summer has strengthened, with chances currently sitting over 60% in favour of a hike.

9.52am BST

The pick-up in growth does have a downside. Companies are struggling to find skilled staff to help them tackle their new orders.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, explains:

"Exceeding expectations the sector ended on a positive note at the end of the second quarter, buoyed up by the fastest rise in new orders in over a year and the strongest overall performance since last October.

"However the downside of this achievement came in the form of relentless capacity difficulties as business backlogs rose to an acute degree, not seen for around three years. Not even the minor uplift in hiring could alleviate the problem as salary pressures and the struggle to find skilled hires caused firms to hesitate to increase staff numbers further.

9.46am BST

Today's forecast-beating services data shows that Britain has recovered from the winter slowdown - when the 'Beast from the East' forced school and shops to close.

Jeremy Thomson-Cook, chief economist at WorldFirst, comments:

"These are the best sentiment numbers for the UK services industry since October and highlight that the sector is continuing to bounce back from the weather affected Q1 that saw shops shuttered and supply lines cut.

Both growth and inflation within the services sector and the wider economy are set to have risen in Q2 with the PMIs for the period hinting at a GDP number of 0.4-0.5% with inflation higher on both higher fuel and wage costs."

9.44am BST

The pick-up in growth last month will encourage the Bank of England to raise interest rates in August, suggests Capital Economics:

Today's stronger-than-expected services PMI makes the all-sector output balance consistent with GDP growth of 0.4% q/q in Q2. That is in line with the MPC's forecast, leaving the committee on course to raise Bank Rate in August. pic.twitter.com/2sFLzeuMVd

9.39am BST

Boom! Britain's dominant service sector has picked up pace, suggesting that UK economic growth has accelerated in the last quarter.

Service sector firms enjoyed the strongest rise in activity since last October, data firm Markit reports, thanks to a rise in new orders.

"Stronger growth of service sector activity adds to signs that the economy rebounded in the second quarter and opens the door for an August rate hike, especially when viewed alongside the news that inflationary pressures spiked higher.

"The survey data indicate that the economy likely grew by 0.4% in the second quarter, up from 0.2% in the opening quarter of 2018. The sharp rise in business costs, linked to surging oil prices and the need to offer higher wages, suggests inflation will also pick up again from its current rate of 2.4%.

9.29am BST

Just in: Eurozone service sector growth picked up last month, suggesting Europe's economy is recovering after a weak start to 2018.

Data firm Markit's eurozone services PMI has risen to 55.2, up from May's 53.8.

The eurozone economy regained some traction at the end of the second quarter. Rates of expansion in output and new business accelerated, although failed to fully recover the momentum lost earlier in the year.

The main impetus was provided by the services economy, which saw growth accelerate to a four-month high, offsetting a further waning in the pace of increase in manufacturing production.

9.22am BST

Beijing policymakers will be relieved to hear that growth in China's service sector rose last month, despite trade war jitters.

The monthly Chinese service sector PMI rose to 53, the highest in four months, showing accelerating growth. Service companies reported a pick-up in new orders, encouraging them to take on more staff.

#China services activity expands the quickest for four months in Jun, according to #Caixin #PMI. Employment and new business indices both climbed moderately, pointing to a positive trend in the service supply and demand sides. More here: https://t.co/L8Wa0k3l9h pic.twitter.com/p0jcW3oCEP

#China Composite #PMI rises to 53 in June! pic.twitter.com/lLnCSLpVWW

9.07am BST

Trade war worries are hit metal prices today.

Copper has dropped to a nine-month low (at $6,423 per tonne) while zinc touched its lowest level in a year.

8.37am BST

China's stock market has dropped again today, as traders fret about the escalating trade dispute with America.

"Investors should expect volatility to continue. Uncertainty over interest rates, protectionism, and China are key risk factors.

We recommend investors stay invested, but consider five actions: looking to alternatives, hedging equity exposure, improving credit quality, diversifying sector and country risks, and taking a longer-term view."

8.01am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Chinese tariffs on $34bn of U.S. goods will take effect from midnight July 6 Beijing time, a person with knowledge of the plan told Reuters, amid worsening trade tensions between the world's two largest economies.

Washington has said it would implement tariffs on $34bn of Chinese imports on July 6, and Beijing has vowed to retaliate on the same day.

Its Game On... #CHINA TO IMPLEMENT #TARIFFS ON $34 BLN WORTH OF #US GOODS FROM MIDNIGHT BEIJING TIME JULY 6 - SOURCE

European Opening Calls:#FTSE 7579 -0.19%#DAX 12315 -0.28%#CAC 5303 -0.25%#MIB 21739 -0.11%#IBEX 9634 -0.28%

Even if service sector activity is stronger than forecast, it may fail to capture investors' attention for any significant amount of time. Brexit will be firmly back on the agenda, with the Prime Minister due to hold talks at the Chequers residence this weekend, in the hope of finding a solution to the customs partnership with the EU post Brexit.

Theresa May has made a series of pleas to her bickering party to sort out their differences and to the EU, not to decline the third proposal.