Business polls still point to UK recovery

 
Julian Harris
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BUSINESS surveys continue to point to a rebound in growth for the first three months of this year, but economists are divided on the extent to which the UK economy will recover.

Business surveys due out today and tomorrow, which cover March, will reveal the level of progress in the construction and services sectors, which together account for around 85 per cent of the UK economy.

“Last month’s services purchasing managers’ index fell back to 52.6 from January’s 54.5, consistent with lacklustre growth,” said Investec’s Philip Shaw.

Figures over 50 in PMI surveys reflect expansion in a sector.

“Given gloomy evidence from retailers over recent weeks, we suspect that the level of the services PMI will remain in the doldrums tomorrow, and accordingly we are forecasting it to remain at 52.6,” Shaw added.

The services sector alone makes up around three quarters of the British economy.

Other business surveys, conducted for the European Commission, point to a positive outlook for the first quarter of 2011, according to Simon Ward, chief economist at Henderson.

“Services and industrial output -- which makes up 93 per cent of GDP -- was 0.7 per cent above its quarter four average,” Ward said.

“And the economy is already rebalancing, with a 12 per cent rise in business investment in the year to quarter four. This contributed one percentage point to GDP growth, which is the equivalent of a 1.6 per cent increase in consumer spending,” Ward added.

On Wednesday, official data will report on industrial output in February, providing more evidence for the likely expansion of GDP in the first three months of the year.

“Overall industrial production is expected to have expanded by 0.3 per cent month-on-month,” said Howard Archer of IHS Global Insight, “with the manufacturing part up by 0.5 per cent.”

The UK’s factory industry has been the good news story of the recovery, yet the sector’s PMI score dropped to 57.1 in March – down from 60.9 in February, and a record high of 61.2 in January.

“Manufacturers reported an unwelcome combination of slower growth and rising price pressures in March,” said Rob Dobson of Markit, which conducts the surveys.

The sector’s growth still remains significantly above the long run average of 51.3.