Services sector results indicate that UK is still on course for clear growth

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BRITAIN’S dominant services sector continued expanding in February, albeit less than expected, boosting hopes the economy will avoid a double-dip recession.

The Markit/CIPS Purchasing Managers’ Index (PMI) for services fell to 53.8 from 56 in January, which had been a 10-month peak. IHS Global Insight economist Howard Archer said while the survey is “modestly disappointing”, it is “far from disastrous and it still indicates that the UK is on course for clear growth in the first quarter”.

The latest reading was below forecasts for a dip to 54.9, but well above the 50 mark which separates growth from contraction.

“The moderation in services expansion in February reinforces our belief that the Bank of England could yet do more quantitative easing although the Monetary Policy Committee will sit tight on Thursday and is clearly now in ‘wait and see mode’,” said Dr Archer.

Confidence among service firms about the year ahead hit the highest level in a year, with more than half of respondents showing optimism, while employment increased slightly.

Markit chief economist Chris Williamson added: “So far this quarter, the sector has notched up its best performance since the spring of 2010, when the economy was rebounding strongly from the recession.

“The outlook in fact seems to have brightened, with business confidence about the year ahead hitting a 12-month high and firms again taking on more staff in February.”

Other PMI releases have shown growth in British manufacturing also slowed last month, whereas construction activity grew at the quickest pace in nearly a year.

Dr Archer said he expects the economy to expand by 0.4 per cent quarter-on-quarter after a 0.2 per cent contraction in the last three months of last year.

Companion surveys for the eurozone emphasised the risk of recession in the region, Britain’s main export market. The UK services survey has shown consistent growth since January 2011. Markit said firms grew new work for the 14th successive month as companies focused on converting inquiries into contracts.

However, some service firms, which range from hotels to accountants, said they were having to discount to win new business and books of outstanding business fell for the 11th consecutive month.