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Rosy services data boosts UK prospects

STRONG growth in Britain&rsquo;s services sector added to the more upbeat mood prevailing in the UK yesterday, ahead of the Bank of England&rsquo;s monetary policy decision. <br /><br />The CIPS/Markit services purchasing managers&rsquo; index (PMI) yesterday showed the headline business activity index surge to 56.9 in October above 55.3 in September and beating the consensus forecast of 55.5. This leaves the index pointing towards quarterly growth in services output &ndash; which accounts for about 65 per cent of total output &ndash; of around 0.7 per cent. <br /><br />Encouragingly, the new business, the outstanding business and employment balances all rose, indicating that the economic circumstances are improving and that the recovery is gaining momentum. <br /><br />Top high-street retailers Marks&amp;Spencer and Next both posted positive trading updates yesterday, with both companies giving an upbeat outlook as consumers become more confident about the recovery.<br /><br />The mounting positive economic data has caused analysts to question the validity of the official third quarter GDP data, which showed a contraction of 0.4 per cent.<br /><br />ING&rsquo;s James Knightley said: &ldquo;These indicators are in line with GDP growth in excess of three per cent year-on-year based on historical relationships, which adds to the confusion over the weakness in third quarter GDP.&rdquo;<br /><br />And regardless of the third quarter data, &ldquo;it appears that the economy is rebounding rapidly in the fourth quarter, helped by the housing upturn, less destocking, a weak pound and higher external growth,&rdquo; said Citi&rsquo;s Michael Saunders.<br /><br />But unemployment nonetheless clouds the better picture. A report from PricewaterhouseCoopers (PwC) published today reveals that UK unemployment could still rise to around 3m by the end of 2010, even if the economy managed to grow by one per cent next year.