UK service sector swings back into output growth

Ben Southwood
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THE BIGGEST sector in the UK economy swung back into growth in January, banishing fears of a triple-dip recession.

Markit’s purchasing managers’ index (PMI) for services jumped from 48.9 in December to 51.5 in the first month of 2013, indicating a rebound from slight decline to moderate improvement.

With the January improvement in manufacturing activity, this meant the all-industry composite output index also moved into expansion, from 49.9 in December, suggesting marginal contraction, to 52.0 in January.

Analysts hailed the upbeat data as squashing fears the economy would register a second straight quarter of falling GDP, and therefore a third technical recession in just over four years. A return to economic growth, after output shrank 0.3 per cent in the final three months of 2012, would be a massive boon to the credibility of chancellor George Osborne.

Chris Williamson, chief economist at Markit said: “A huge sigh of relief accompanies these numbers, as a return to growth in the service sector greatly reduces the likelihood of the UK falling back into a triple-dip recession.”

In a note Colin Edwards at the Centre for Economics and Business Research (CEBR) agreed that the size of the service sector – it makes up about three quarters of GDP – meant expansion there was evidence the UK economy would return to expansion.

“Barring another dramatic turn of events, early signs suggest that the UK will more likely than not avoid contraction in the first quarter at side-step a triple-dip recession,” Edwards forecasted.

But other analysts stressed that the levels remained well-below pre-crisis norms.