Rebound in UK services after winter freeze

 
Julian Harris
Follow Julian
THE UK economy bounced back strongly at the beginning of the year, fresh data suggested yesterday.

The service sector – which accounts for over three quarters of GDP – expanded by 1.3 per cent in January, compared to December. The rebound marked the sharpest monthly growth in services since July 2002.

Meanwhile, there was some relief for the struggling British high street, with 42 per cent of retailers reporting that annualised sales rose in March, according to the Confederation of British Industry (CBI).

“The data suggests that the economy has returned to positive growth in the first-quarter, after the 0.5 per cent drop in GDP recorded for the fourth-quarter of 2010,” said Citigroup’s Michael Saunders.

The economy shrank by half a per cent in the final three months of 2010 due to the effects of the winter freeze, the Office for National Statistics (ONS) said yesterday.

The sharp return to growth in services partly reflects recovery from the snow-affected December, the ONS said yesterday. In December, services fell by 1.1 per cent.

“Without the effect of the weather, the underlying output of the service sector would have been broadly flat in December and January,” it said.

However, Saunders expects growth in the first three months of 2011 to more than recover the half per cent decline at the end of 2010. “At this stage, our forecast is for quarter-one growth of 0.6-0.8 per cent,” he said.

The index of services was up by two per cent compared to January 2010, the ONS revealed, largely driven by business services and finance, which were also up two per cent.

While the positive balance of 15 per cent of retailers reporting a rise in sales surprised economists, the CBI survey revealed downbeat responses to other questions.

Four from ten retailers said sales were poor for this time of year, resulting in a negative balance of -24 per cent – the lowest figure since August 2009.

Retailers also expect sales to underperform against seasonal norms in April. “Sales growth picked up slightly for retailers compared with last month, but look beneath the surface and conditions remain tough on the high street,” the CBI said.