Service sector in surprise boost

The UK services sector picked up pace in December as companies saw more new business flowing in, a survey showed today, dampening fears the economy is already back in recession.

The Markit/CIPS Purchasing Managers' Index (PMI) for the service sector rose to 54.0 in December from 52.1 in November, confounding expectations for a dip to 51.5 and edging higher above the 50 mark that separates growth from contraction.

The unexpected bounce comes after the construction PMI showed a slight pick-up in growth in December and the contraction in manufacturing slowed.

"Services are likely to have expanded by around 0.3-0.4 percent in the final quarter, down from 0.7 percent in the third quarter but offsetting a renewed downturn in manufacturing and sluggish growth of construction to help the UK avoid a slide back into recession, at least for now," said Markit chief economist Chris Williamson.

However, the combined PMIs posted their weakest quarter since the second quarter of 2009, when Britain was still in deep recession, he said, adding that the economy had probably stagnated in final quarter of 2011.

The Bank of England predicts a stagnation until mid-2012, though some policymakers have warned the economy may shrink for one or two quarters.

A slump in industrial and services output in October had indicated a weak start to the fourth quarter and many economists forecast a renewed recession as the euro zone crisis hits business morale and consumers cut spending.

The central bank is widely expected to add more stimulus and prop up its asset purchases by another 50 billion pounds after it launched a second round of quantitative easing in October.

The jump in Britain's services PMI follows more positive news from Britain's key export markets such as the euro zone.

British services firms recorded stronger growth in new business and kept staff levels largely stable in December, Markit said. Hotels, caterers & restaurants saw the strongest improvement in overall activity.

However, the business expectations index dropped from 67.4 to 63.5, the same as September's 2-1/2 year low.

"Companies grew increasingly worried about the coming year, suggesting that the upturn may prove short-lived as we move into 2012," Markit's Williamson said.