Positive services sector figures raise doubts over a double dip

Britain’s double-dip recession was again called into question yesterday as a survey revealed further growth in the powerhouse services sector.

The Markit/CIPS survey came in at 53.3 in April, which although a drop from 55.3 in the previous month, still represents growth for the 16th month in a row.

The economy entered a technical recession in the first three months of the year, according to the Office for National Statistics (ONS), as it shrank 0.2 per cent, following a 0.3 per cent decline in the previous quarter.

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But Markit chief economist Chris Williamson said: “From what we are hearing from panellists, this certainly does not sound like an economy in recession.”

The sector, which makes up around 75 per cent of the total economy, was boosted by a rise in incoming new business, driven by companies’ success at converting inquiries into contracts, Markit said.

In addition, the data showed that optimism among UK service providers hit its highest level in more than two years, with more than 50 per cent of those surveyed expecting a rise in activity in 12 months’ time.

The survey follows results from the manufacturing sector, which saw growth slow to its lowest level of the year, fuelling fears that the economy will struggle to return to growth.

Some economists cast doubt over last week’s ONS figures, which followed a run of strong industry surveys from the manufacturing and services sector.

The Bank of England last week called the ONS estimates on the construction sector “perplexing” and said it put more weight on the positive purchasing managers surveys published throughout the quarter.

However, the figure was only a first estimate, with 40 per cent of the total data used in June’s final version so far collected, and subject to revision.

Markit said the underlying performance of the UK service sector remained positive in April, with activity, new business and employment all recording grow- th.

The survey revealed that competitive pressures and the need to offer discounts to attract more customers bore down on pricing power in the sector last month, squeezing margins.

Staffing levels rose at a pace that matched January’s near four-year high, spurred on by the encouraging level of new business orders.

Mr Williamson went on: “Even though the weaker services growth follows similar slowdowns in manufacturing and construction, the PMI surveys suggest that the economy will have expanded again in April, and that the recent gloomy official data pointing to a downturn in the first quarter will eventually be revised to show modest growth.”

The Bank of England decides next week whether to extend its quantitative easing programme.