Upbeat services growth dims chance of triple dip

Ben Southwood
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FEARS that UK could slide into a triple dip recession were soothed yesterday as data showed Britain's services sector grew more quickly than expected in February.

Markit’s widely-regarded purchasing managers’ index for services climbed to 51.8 last month, from 51.5 the month before, beating analysts’ expectations it would slide to 51.

This puts it further above the 50 figure that indicates no change in output, implying that the sector – the biggest by far in the UK economy – is expanding at a moderate but substantial pace.

Analysts said that last month’s increase suggested the UK’s struggling economy would avoid a second consecutive quarter of declining GDP – the technical measure of a recession – by a hair’s breadth.

“A reassuring out-turn for the services PMI,” said economist Nida Ali of the Ernst & Young Item Club, “especially in light of the dismal results for manufacturing and construction.”

The new numbers would make the Bank of England’s March decision on rates and quantitative easing (QE) – which comes tomorrow – very finely-balanced, according to some economists.

“These figures are not weak enough to make extra QE this week a certainty, but nor are they strong enough to make extra stimulus unnecessary,” said Citi researcher Michael Saunders.

Market commentators were split on whether £25bn or more of new QE would come this month – but nearly all thought the Bank was set to hit the economy with new stimulus, whether sooner or later.

“The bottom line is – particularly taken with the [very positive] British Retail Consortium indicator on Monday night – that the MPC decision is extremely finely balanced,” added David Tinsley of BNP Paribas.

“We’re going to stick with our call for £25bn more QE. If they do more QE it certainly indicates a different sort of policy action on the part of the committee insofar as this sort of QE is about getting the economy up to ‘escape velocity’ rather than about avoiding the economy falling into a pit.” Last month Bank chief Sir Mervyn King surprised analysts by voting for more QE.