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UK: Service sector defies the big freeze to return to growth

PUBLISHED: 15:29 05 February 2013 | UPDATED: 15:29 05 February 2013

The prospects of the UK economy avoiding a return to recession have improved following industry surveys from the services and retail sectors

The prospects of the UK economy avoiding a return to recession have improved following industry surveys from the services and retail sectors

BRITAIN’S chances of avoiding a triple-dip recession received a boost today as industry figures signalled a return to growth in the powerhouse services sector.

The latest Markit/CIPS purchasing managers’ index (PMI) showed an overall reading of 51.5 in January, the highest since last September and a marked recovery after the first contraction in activity for two years in December.

Activity in the sector, which accounts for 77% of wider UK economic output, was helped by an increase in new business levels and increased capacity as firms took on more staff.

Figures from the British Retail Consortium (BRC) also suggest the high street performed far better than expected, with like-for-like January retail sales growing at the fastest rate since December 2011, up 1.9% on the previous year.

The figures have confounded expectations for a snow-hit start to 2013, with many expecting firms to have suffered amid the adverse weather and freezing conditions.

Experts said the services sector performance raised hopes that the wider economy would return to growth this quarter, which would see the UK avoid plunging into an unprecedented triple dip recession.

Economist Blerina Uruci at Barclays said: “Considering the importance of the services sector for the economy, an improvement here bodes well for first quarter growth, although we would point out that the PMI is still far from being consistent with a solid pace of expansion.”

Official figures earlier this month estimated that gross domestic product shrank by a worse-than-expected 0.3% in the fourth quarter of 2012.

The economy would have to contract again this quarter to be back in recession, but there were fears that the heavy snow at the start of 2013 would cause GDP to shrink again.

Markit said the readings across all of its PMIs pointed to growth so far in the first quarter, with the all-sector index at 51.7 in January against 49.8 in December.

The services report showed that the sector saw its best gain in employment for six months, while business confidence hit an eight-month high.

Last week’s PMI for the manufacturing sector showed a robust reading of 50.8 in January - above the no change in activity value of 50 for the second month in a row.

But the construction sector was hit badly by the weather conditions, with PMI figures yesterday showing an output reading of 48.7 in January - below 50 for the third month in a row.

Vicky Redwood, chief UK economist at Capital Economics, gave the figures a cautious welcome. “While there is tentative hope that a triple dip may be avoided, there are still few signs of an actual recovery in the economy,” she said.

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