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By Fiona Shaikh
LONDON, Aug 5 (Reuters) - Britain's services sector unexpectedly surged in July to grow at its fastest pace in more than a year, a survey showed on Wednesday, igniting hopes the economy may have started growing again in the third quarter. The headline business activity index of the CIPS/Markit Purchasing Managers' survey rose to 53.2 in July from 51.6 in June, the highest since February 2008 and beating forecasts for a more modest expansion to 51.8. The index has risen more than 13 points from its record low in November, the most marked improvement in the survey's 13-year history, Markit said.
The equivalent survey on manufacturing earlier this week showed activity in that sector grew in July for the first time since last March. Together, the reports suggest Britain may now be emerging from recession after the second quarter's unexpectedly sharp 0.8 percent fall.
Separate official data on Wednesday showed industrial and manufacturing output both unexpectedly rose in June, although analysts said that alone was unlikely to lead to an upward revision to second-quarter GDP data. [nONS004405]
Gilt futures plunged almost half a point on the day and the pound jumped almost half a cent against the dollar after the data, which reinforced expectations the Bank of England would stop buying assets to support the economy.
Central bank policymakers begin their two-day meeting today to debate whether to expand their 125 billion pound ($212 billion) asset purchase programme which ended last week or take time out to gauge the effectiveness of the policy.
"It's very closely watched by the Bank of England and we think this will add to arguments for it not to expand quantitative easing at tomorrow's meeting," said David Page, economist at Investec.
The survey's new business index rose to 52.7 from 49.7, the highest since March 2008, as confidence in the outlook for the economy encouraged firms improved.
"Combined with the positive trends in the construction and manufacturing output balances, July's PMI data provides supportive evidence of overall GDP growth at the start of Q3," said Markit economist Paul Smith.
However, firms were still operating below capacity and continued to shed jobs to try to curb costs as margins came under pressure from rising input prices.
Business expectations eased from a 20-month peak hit in June but remained firmly in positive territory, boosted by growing demand and signs the UK was close to coming out of recession, Markit said. (Editing by Mike Peacock)