The U.K. service sector expanded at the strongest pace in ten months in January, reviving hopes that the economy could avoid a recession and rebound in the first quarter of this year.
The latest survey by Markit Economics and the Chartered Institute of Purchasing & Supply revealed Friday that the headline business activity index rose to 56, the highest reading since March 2011, from 54 in December. Economists had forecast a decline to 53.3.
"The surprisingly strong upturn in the service sector follows a similar improvement in manufacturing and ongoing growth in construction, which all points to a resounding revival of UK economic growth in January," said Chris Williamson, chief economist at Markit.
Another Markit survey this month showed that the manufacturing sector grew at a fastest pace in eight months in January due to a rise in new orders and production.
Growth of services activity was supported by the strongest gain in volumes of incoming new business since last July. Business expectations jumped to the greatest extent in fifteen-and-a-half years of data collection, the survey report said.
Employment rose solidly, with the latest job gains being the strongest since March 2008. Input cost inflation fell to a 14-month low, while output charges continued to remain unchanged.
"Relapses in activity remain a very real risk given major headwinds that notably includes still pressurized consumers, rising unemployment, reduced government spending and the ongoing uncertain Eurozone sovereign debt situation," IHS Global Insight Chief Economist Howard Archer said.
The U.K. economy contracted 0.2 percent sequentially in the fourth quarter after expanding 0.6 percent in the previous three months.
Earlier today, the National Institute of Economic and Social Research said that the British economy is likely to return to technical recession in the first half of this year.
The think tank forecasts the economy to contract 0.1 percent in 2012. A growth of 2.3 percent is projected for 2013, assuming a successful resolution of the euro crisis. The institute suggested that a temporary easing of fiscal policy in the near term would boost the economy.
Members of the Bank of England monetary policy committee are expected to vote for more Quantitative Easing next week to support the economy amid the European debt turmoil.
Last month, central bank Governor Mervyn King signaled more QE in the near term, given the fact that inflation is slowing and economic activity weakening.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.