Services see third month of expansion

Tim Wallace
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THE UK is likely to avoid a new recession according to figures published yesterday, which show a third consecutive month of growth in the services sector.

Markit’s purchasing managers’ index (PMI) came in at 53.8 for February – slower than the 56 seen in January, but still firmly above the no-change level of 50.

The growth figures come after manufacturing and construction sector PMIs last week which showed both sectors growing – though manufacturing, like services, slowed slightly.

February’s expansion was accompanied by a modest rise in employment of roughly 30,000 jobs, and increasing confidence for the rest of the year.

New work expanded for the fourteenth consecutive month, though firms remain under competitive pressure to keep output prices low in spite of rising input costs.

“It is encouraging that the services PMI indicated another month of solid growth in activity, and the strength of the orders pipeline also suggests that output may continue growing in the coming months,” said Nida Ali from the Ernst and Young Item Club.

“However, underlying demand is still fragile and companies are having to accept lower margins in order to secure business.

“The services sector still faces a challenging environment and we are seeing a slow grind towards recovery.”

The gradual nature of this recovery is expected to have a bearing on monetary policy.

The Bank of England’s monetary policy committee (MPC) meets to make the month’s decision on interest rates and quantitative easing this week, and is known to take PMI data into consideration.

“In our view, the MPC’s growth forecasts probably relied too much on the rise in the January PMIs,” said Citi economist Ann O’Kelly.

“First, the PMIs have fallen back a bit. Second, the link between the PMIs and real GDP growth is quite variable.”