London leads UK economic rally

LONDON'S economic fightback gathered pace last month as the private sector staged its strongest growth spurt for 10 months.

Along with the South-East region, the capital was in the vanguard of a promising rally in Britain's lacklustre economy, according to the Royal Bank of Scotland's Purchasing Managers' Index (PMI) out today.

The figures will heap further doubt on the Bank of England's decision in July to cut interest rates, and will leave many economists ever more certain that the next move in the cost of borrowing will be up.

A stream of official data and survey evidence since the Bank's move has suggested consumer confidence and retail sales have been improving, although the housing market in the capital still appears to be cooling.

The PMI's overall business activity index, in which anything above 50 indicates expansion, saw London soar to 55.7 in July from 53.1 in June and a shrinking 48.8 in May.

Across the UK, activity was 55.2 against 53.1 the previous month.

Key to the PMI improvement in London and the South-East was a strong performance from service sector companies, which benefited from the Baghdad bounce after the end of the Iraq war.

Jeremy Peat, chief economist at RBS, said: 'London has returned to its usual position as one of the fastest-growing regions in the UK.'

For the first time in nine months, every region in Britain saw growth.