Economy continues along path of recovery

The modest economic recovery remains on track, surveys showed yesterday, although service sector growth slowed last month and a looming public spending squeeze is making firms reluctant to invest.

With the health of the economy a key factor in the General Election the CIPS/Markit purchasing managers' index showed the country's services sector expanded less than expected in March.

The reading slipped to 56.5 from February's three-year high of 58.3. Separate figures from the Office for National Statistics showed services output fell in the first month of the year at its fastest monthly pace since August.

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A survey from the British Chambers of Commerce showed export balances for both services and manufacturing firms improved at the start of this year. However, investment balances worsened and confidence remained low by pre-recession standards.

There was also a marked divergence between the services sector, which continued to strengthen, and the manufacturing sector which stagnated.

"The results support the view that GDP growth stayed positive in the first quarter, but the recovery is set to remain fragile and sluggish," said BCC chief economist David Kern.

Another survey, from the Recruitment and Employment Confederation, showed the number of people placed in permanent jobs rose last month at the fastest rate since October 1997. However the report noted that the return of confidence was confined to the private sector and the public sector was set for a long period of belt-tightening.

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"The public sector recession which clearly is on the cards hasn't hit the jobs market yet but when it does, the upward trend we have seen over the last couple of months may come to a halt," said Bernard Brown, a partner at KPMG.

Inflation looks to be abating and most economists expect it to be below two per cent by the end of the year.