Lift in UK services sector confirms dramatic bounce-back in growth...

Julian Harris
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GROWTH in the UK’s service sector surged at its fastest rate for a year in March, suggesting the economy has sprung back from the reported contraction at the end of 2010.

The economy is now estimated to have grown by up to 0.8 per cent in the first three months of this year, according to Markit, which compiled yesterday’s service sector data.

At the end of 2010 the economy stagnated, but the severe winter freeze resulted in a 0.5 per cent contraction – according to figures from the Office of National Statistics.

Yet Britain’s largest sector hit an index score of 57.1 in March, spiking from the 52.6 reading the previous month, Markit’s purchasing managers’ index (PMI) showed.

All figures above the no-change rate of 50 indicate growth. The data does not include the ailing UK retail sector.

“Services activity growth surprised well to the upside in March, and points to the strongest expansion of the sector since the economy was surging out of its recession early last year,” said Markit economist Paul Smith.

Incoming new business jumped at its fastest rate for a year, while the data showed the first rise in work outstanding since September 2007.

And firms in the sector increased their number of staff in March, for the first time in nine months.

Meanwhile, yesterday’s data were mirrored in the Eurozone, where strong services data contrasted with a sluggish high street sales.

Retail sales across the single currency area fell 0.1 per cent in February, compared to January -- an annual rise of just 0.1 per cent.

Yet service sector activity jumped to 57.2 according to March’s PMI survey, a three and a half year high.

The composite index, which measures services, manufacturing and construction, reached 57.6 last month, and has now signalled economic expansion for 20 consecutive months.

However, there is a widening gap between the rallying core economies of the single currency area and the struggling periphery. “Output growth eased sharply in Ireland, Spain fell back into a services-led contraction and the downturn in Greek manufacturing continued,” the report said. “However, Germany and France saw solid increases in new orders in both services and manufacturing.”

The purchasing managers’ index (PMI) data does not include the retail sector. In fact, high street trade is not included in any of the PMI surveys, conducted by Markit and the Chartered Institute of Purchasing and Supply (CIPS). “The surveys originally began to fill a gap in the Bank of England’s data,” Markit’s chief economist told City A.M. “The retail side was covered, but there was a need for in depth analysis of the UK’s services industry.” Financial services, including insurance and pensions provision and financial intermediation, consist of almost a fifth (18.8 per cent) of the private sector services. The PMI data provides prompt evidence of the state of the economy as a whole, as well as a detailed breakdown of the three main sectors – services, manufacturing and construction. The data is now used to measure economic growth – or contraction – in 26 countries and key regions, including the Eurozone and BRICS (Brazil, Russia, India and China).