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UK services sector growth reduces triple-dip recession fears UK services sector growth reduces triple-dip recession fears
(about 4 hours later)
Britain's services sector grew faster than expected in February, raising hopes that the economy could narrowly avoid sliding into a triple-dip recession. Britain's vast and crucial services sector picked up in February, raising hopes the economy could narrowly avoid dropping into a triple-dip recession.
The monthly snapshot of business conditions from CIPS/Markit showed the sector – which accounts for three-quarters of Britain's economic output – growing for the second month running. Meanwhile, the eurozone slid further into a downturn, dragged deeper by France, Spain and Italy.
The closely watched purchasing managers' index (PMI) for services jumped to 51.8 from 51.5 in January, beating expectations of a reading of 51. A figure above 50 suggests the sector is expanding. The UK's monthly healthcheck of the services sector – which accounts for three-quarters of Britain's economic output – showed the fastest rise in business activity in five months.
That could bring the country back from the brink. The UK economy shrank by 0.3% in the final three months of 2012; if output falls again in the first three months of 2013, Britain would officially drop into a triple-dip. Downbeat reports from manufacturing and construction made that outcome look increasingly likely, but the dominant services sector could lift Britain's economic fortunes. That could bring Britain back from the brink of its third recession since the financial crisis. The UK economy shrank by 0.3% in the final three months of 2012; if output falls again in the first three months of 2013, it would officially drop into an unprecedented triple-dip. Downbeat reports from manufacturing and construction made that outcome look increasingly likely, but the dominant services sector could lift Britain's economic fortunes.
Chris Williamson, chief economist at Markit, said the surveys so far pointed to a 0.1% increase in GDP in the first quarter. "Growth could turn out stronger than this as there is good reason to believe that at least some of the weakness in manufacturing and construction was due to business being disrupted by bad weather, meaning a brighter picture may emerge in March."Chris Williamson, chief economist at Markit, said the surveys so far pointed to a 0.1% increase in GDP in the first quarter. "Growth could turn out stronger than this as there is good reason to believe that at least some of the weakness in manufacturing and construction was due to business being disrupted by bad weather, meaning a brighter picture may emerge in March."
But other economists are far from convinced. Capital Economics said: "A weighted average of the three surveys suggests that it is touch and go whether the overall economy will manage to grow at all this quarter. So a triple-dip recession is certainly still very possible." But other economists are far from convinced. Capital Economics said the data suggest it is "touch and go whether the overall economy will manage to grow at all this quarter". It believes a triple-dip recession is "certainly still very possible".
Confidence among service companies – which span everything from transport, to IT, and hotels – rose to its highest level since last May, and contributed to a pick up in employment in the sector. The closely watched purchasing managers' index (PMI) for services jumped to 51.8 from 51.5 in January, beating expectations of a reading of 51. A figure above 50 suggests the sector is expanding.
The data eases pressure on the Bank of England, which meets on Thursday to discuss the possibility of expanding its quantitative easing (QE) programme. Economists say the decision is on a knife-edge, after three members of the monetary policy committee voted in favour of injecting more money into the economy at the February meeting, including bank governor Sir Mervyn King. Confidence among companies in the sector – which spans everything from transport to IT and hotels – rose to its highest level since last May and contributed to a pickup in employment.
Capital Economics said: "The rise in the services activity probably tips the balance towards the MPC doing nothing – especially following the solid high street spending figures released by the British Retail Consortium overnight." But they added that, unless the economic data show a marked improvement, "we will probably see a resumption of QE before long". The data eases pressure on the Bank of England, which meets on Thursday to discuss interest rates and the possibility of expanding its quantitative easing (QE) programme. Economists say the decision is on a knife-edge, after three members of the monetary policy committee voted in favour of injecting more money into the economy at the February meeting, including bank governor Sir Mervyn King.
Meanwhile, the eurozone slid into a deeper downturn in February, dragged down by France Spain and Italy. Markit's eurozone composite PMI – which gauges activity at thousands of companies across the currency bloc – dropped to 47.9 in February, from 48.6 in January. Capital Economics said: "The rise in the services activity probably tips the balance towards the MPC doing nothing – especially following the solid high street spending figures released by the British Retail Consortium." But it added that, unless the economic data show a marked improvement, "we will probably see a resumption of QE before long".
The survey demonstrated the widening chasm between the region's largest economy Germany, with a reading of 53.3, and France, where activity is contracting at its fastest rate in four years, with a reading of 43.1. Chris Williamson of Markit said: "Worryingly, the divergence between Germany and France so far this year is the widest in the 15-year survey history." Business activity in the eurozone continued to decline. Markit's eurozone composite PMI – which gauges activity at thousands of companies across the currency bloc – dropped to 47.9 in February, from 48.6 in January.
He said the region was now reliant on just one economy. "The outlook seems to largely depend on whether Germany can continue to expand and offset the weakness in France, Italy and Spain, which seems a tall order, meaning hopes of a return to growth for the region by mid-2013 are now looking too optimistic." The survey demonstrated the widening chasm between the region's largest economy, Germany, where output continues to grow, and France, where activity is contracting at its fastest rate in four years.
Chris Williamson of Markit said: "Worryingly, the divergence between Germany and France so far this year is the widest in the 15-year survey history." The PMI for Germany came in at 53.3, while the reading for France was 43.1 in February.
Williamson said the currency bloc was now reliant on just one economy. "The outlook seems to largely depend on whether Germany can continue to expand and offset the weakness in France, Italy and Spain – which seems a tall order – meaning hopes of a return to growth for the region by mid-2013 are now looking too optimistic."
The figures suggest the eurozone economy will shrink by 0.2% in the first quarter, an improvement on the 0.6% contraction seen in the three months to December.