Services sector gives rise to hope

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BRITAIN will avoid recession after its dominant service sector recorded robust growth last month, analysts have predicted.

The purchasing managers’ index of UK service providers showed the strongest growth in business activity in nearly two years.

The report also highlighted a solid rise in new business, sustained levels of confidence and a modest increase in employment.

“The upturn accompanies a similar strengthening in construction activity and ongoing growth of manufacturing, suggesting the economy will have grown by as much as 0.5 per cent in the first quarter,” said Chris Williamson, economist at survey compiler Markit.

“This is a decent result,” added Philip Shaw of Investec. “In fact all three PMI this week have risen against expectations of declines.

“Taken together, they suggest that the economy does have a reasonable degree of momentum.”

The sector, ranging from banks and professional services firms to restaurants and hotels, accounts for three quarters of the UK economy.

Adding to the positive news, mortgage lender Halifax said house prices rose 2.2 per cent in March, against forecasts for a dip, raising hopes that the housing market – once a springboard for consumer spending – is at least stabilising.

The economy has balanced on the brink of technical recession since it contracted by 0.3 per cent in the last quarter of 2011.

But fears of a double dip have been unfounded, said David Noble, chief executive of the Chartered Institute of Purchasing and Supply.

The markets agreed: Sterling rose to a two-week high versus the euro and pared losses against the dollar in the wake of the services data.

Others were a little more wary. Tom Vosa, economist at Yorkshire Bank, said the expansion “remains volatile”, while Samuel Tombs of Capital Economics said the survey excluded activity on the high street, which has weakened recently.

“Moreover, even if the economy did grow in the first quarter, the prospect of a renewed rise in tensions in the eurozone, further fiscal austerity and high oil prices suggest that the economy will struggle to expand in the coming quarters,” Mr Tombs added.

In Yorkshire, Roger Marsh, senior partner at the Leeds office of PwC, told the Yorkshire Post that he is seeing an improvement in service sector activity, a view shared by his counterparts at other firms in the region.

“It’s encouraging,” he said. “But certainly there are no grounds for complacency. It’s a long haul and the UK balance sheet position has a lot of debt to deal with.

“There are grounds for optimism that we have the capability and capacity to meet these challenges over the coming years.”

He said the UK still has to develop “game-changing initiatives” to achieve a successful rebalancing of its economy; these involve centres of excellence such as the planned advanced medical park in Leeds.

Margaret Wood, chairwoman of the Institute of Directors in Yorkshire, said: “The only way we will have sustainable recovery from this deep recession is if we produce the goods that we can earn our way into recovery with.

“We appreciate the need for the service and financial sectors but ultimately it is the goods we manufacture that will generate the long term, long-lasting growth the country needs.

“There must be that balance between services and manufacturing and we in the production sector must feel as though local and national government is working alongside us to create that wealth again.”

Unemployment, meanwhile, remains at its highest level since the mid-1990s.

bernard.ginns@ypn.co.uk