Services look for a rebound

Julian Harris
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PROSPECTS for economic recovery in 2011 will be clearer this week, when official data is released on the UK’s largest sector.

The index of services fell 0.6 per cent in the final month of last year, yet is expected to rebound in 2011.

January’s data is released on Wednesday, by the Office for National Statistics.

Severe winter conditions were partly responsible for the knock to Demember’s figures, although services are failing to bounce back as strongly as many hoped.

“We are seeing manufacturing grow very strongly, at some record rates, whereas services are struggling,” said Chris Williamson of Markit.

Markit’s purchasing managers’ index hit an eight-month high of 54.5 for the services industry in January, as it sprung back from the December decline. However, growth (represented by all figures over 50 in the index) slipped to 52.6 in February, reflecting ongoing weakness in services.

Growth in manufacturing, meanwhile, hit a 20-year high in January and continued to thrive into February, according to the PMIs.

“Domestic consumer spending still accounts for 65 per cent of GDP, so weak domestic demand hits a lot of areas,” Williamson said.

While much of the services industry can turn to expanding demand for exports, the rebalancing of the UK won’t be strong enough to push the whole sector forward, Williamson said.

In December, hotels and restaurants saw output plummet by an annualised rate of 5.4 per cent.

Business and finance, less affected by the weather and domestic demand, slipped just 0.8 per cent.