Services data disappoints but firms are confident and hiring

ACTIVITY in Britain’s services sector expanded at a slower pace last month according to a leading survey while official statistics confirmed the impact of adverse weather conditions on the sector in January.

The CIPS/Markit business activity index fell to 56.5 from February’s three-year high of 58.3, disappointing the markets which had expected little change. However, the index remained well above the 50 level that separates expansion from contraction and encouragingly employee numbers rose for first time since April 2008. Equally positive was the confidence among service sector firms, which rose to a six-month high. The continued strong PMI data suggests that Britain should avoid a negative first quarter GDP reading.

However, data from the Office for National Statistics (ONS) showed that services output in January fell 1.1 per cent on the same month in 2009 while the three months to January was down 1.4 per cent.

Capital Economics said that a weighted average of all three PMI surveys still appeared consistent with a quarterly increase in GDP of about 0.7 per cent, close to its long-run average growth rate.

The Eurozone’s composite PMI showed that the region saw the fastest economic growth since August 2007 in March, with manufacturing leading the way.

However, official data quickly dispelled any optimism in the markets after revised data from Eurostat showed that the Eurozone economy stagnated in the last three months of 2009. Overall, Eurozone GDP contracted by 4.1 per cent in 2009. Stagnation in Germany and renewed contraction in Italy was partly offset by French GDP growth.