Strong Services Data Signals UK May Have Sidestepped Triple-Dip Recession

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Britain's key services sector expanded in March at the fastest pace since last summer, according to the closely watched purchasing managers' index (PMI), boosting hopes that the economy may have avoided sliding into a triple-dip recession.

As the Bank of England's policymakers prepare to announce whether they will undertake a fresh round of quantitative easing, the index of the services sector, published by the data provider Markit, jumped to 52.4, from 51.8 in February.

That points to the fastest rate of expansion since last August, and may help to strengthen the argument of hawks on the Bank's nine-member monetary policy committee who are concerned that expanding its bond-buying programme could unleash inflation as the economy recovers. Last month three members, including the governor, Sir Mervyn King, called for more QE, but were outvoted.

Markit's chief economist, Chris Williamson, said the rise in the services index showed that strong growth in the sector, which includes banks and retailers, had only just offset declining output in manufacturing and the struggling construction sector over the first three months of 2013.

"A gathering upturn in the service sector in March looks to have helped the UK avoid a triple-dip recession by the narrowest of margins. However, the weakness of private-sector growth signalled by the PMI data in the first quarter means that a flat GDP picture or even a decline could be seen if government sector output falls," he said.

After GDP contracted in the final quarter of last year, another decline would mark a slide into a triple-dip recession. The Office for National Statistics will release an early estimate of economic growth in the first quarter later this month.

Economists are divided about whether GDP has recovered, with the unseasonably cold weather increasing doubts about how the economy has performed.

"We expect the economy to have squeezed out GDP growth of 0.1%-0.2% quarter-on-quarter in the first quarter, but there is obviously major uncertainty over what the outcome will be," said Howard Archer, UK economist at the consultancy Global Insight.

As well as a rise in the headline PMI, the details of the survey revealed some other upbeat signals about the health of the economy, including an increase in the size of companies' payrolls in March, and the fastest increase in new business for 10 months.

Powered by Guardian.co.ukThis article was written by Heather Stewart, for guardian.co.uk on Thursday 4th April 2013 10.11 Europe/London

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