City cheers as economy rebounds

RELIEF trickled through global markets yesterday as a series of polls showed the strongest growth in the services sector since the financial crisis began, fuelling hopes of recovery.

Shares rose on both sides of the Atlantic after the UK service purchasing managers survey surprised analysts by jumping 3.9 points to 58.4 for February – its highest level since January 2007. The gain, greeted as “staggeringly good” by Investec chief economist David Page, was closely followed by a 2.5-point increase in the US Institute for Supply Management index to 53.

The numbers suggested the dominant retail and construction industries had shaken off the ill effects of a cold winter and the rebound in the rate of VAT to expand at their fastest pace for years.

Traders took heart from the data, sending the FTSE 100 up 0.9 per cent to 5,533.21. The S&P 500 put on half a point to close at 1,118.79, although the Dow Jones and the Nasdaq both declined slightly.

Paul Smith of Markit Economics, which compiles the UK index with the Chartered Institute of Purchasing & Supply, said: “When combined with positive manufacturing results, February’s PMI surveys augur well for the economy to build on the momentum of exiting recession.”

Sterling was given a reprieve after a period of sustained pressure due to fears over Greece’s public finances. The pound rallied above the psychologically important $1.50 mark, closing 0.7 per cent up at $1.5124.

In America, more good news came in the form of fewer monthly job losses than at any point since January 2008. Around 20,000 private sector redundancies were made in February, 40,000 fewer than January and significantly below the level expected by onlookers.

While economists speculated the labour market may finally be stabilising, the Federal Reserve’s influential Beige Book dampened spirits slightly. It said the US economy had rebounded only at a “modest” pace this year, with a “slight improvement” in consumer spending. Disappointment came in stronger form from the eurozone, where the PMI stayed flat at 53.7 in February, lagging growth in the US and UK.