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U.K. Services Activity Growth Fastest In Five Months

U.K. Services Activity Growth Fastest In Five Months

The U.K. service sector expanded at the fastest pace in five months in February, underpinned by a solid expansion of new business, survey data from Markit Economics showed Tuesday. The second successive improvement in the dominant services sector sparked hopes of an economic revival.

The seasonally adjusted Chartered Institute of Purchasing & Supply (CIPS) Purchasing Managers' Index for the services sector rose unexpectedly to 51.8 from 51.5 in January. The reading was forecast to fall to 51.

New business increased at the sharpest pace for nine months in February on improving market confidence. Promotional activity and strong reputations also underpinned new orders, the survey said.

Service providers remained confident in February, with over 46 percent expecting activity to improve from the current levels in 12 months' time. Activity and new order growth in turn supported a further rise in payroll numbers.

Increased capacity helped to reduce the level of outstanding business held by service providers. Backlogs of work have now fallen for five consecutive months.

Further, the report showed that average input costs continued to rise in February, with the rate of inflation accelerating from January. Output charges were raised for the fifth month in a row.

"So far, the PMIs suggest that the economy will have grown by 0.1 percent in the first quarter, barely making up for any of the 0.3 percent decline seen in the final quarter of last year," Chris Williamson, chief economist at survey compilers Markit said.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said the modest underlying improvement suggests that the economy is heading in the right direction.

The report published by the British Retail Consortium earlier in the day showed an increase in retail sales value by 2.7 percent on a like-for-like basis in February. On a total basis, sales were up 4.4 percent, larger than the 2.3 percent rise in the same period of last year.

The February BRC and purchasing managers' services surveys give a real lift to hopes that the economy can eke out modest growth in the first quarter of this year and avoid a triple dip recession, IHS Global Insight's Chief U.K. Economist Howard Archer said.

The slight improvement in services PMI could well be the decisive factor that prevents the central bank from restarting its quantitative easing programme this week, Vicky Redwood, chief UK economist at Capital Economics said. The Bank of England is set to announce its latest policy decision on Thursday.

by RTT Staff Writer

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