March 3, 2010 / 9:32 AM / 10 years ago

Services rebound boosts recovery hopes

LONDON (Reuters) - The services sector bounced back faster than expected in February to record its strongest expansion in more than three years, a survey showed on Wednesday.

Coupled with a surprisingly robust manufacturing survey earlier this week, the figures boosted hope that Britain’s recovery was gaining traction after January’s snow-related disruption.

The pound rose more than a half a cent against the dollar as the chance of further monetary easing from the Bank of England looked increasingly remote.

The four-point jump in the CIPS/Markit services PMI index — to 58.4 from 54.5 — more than reversed January’s fall and took the index to its highest level since January 2007.

None of the 30 economists polled by Reuters had forecast such a sharp improvement. The consensus forecast had been for a reading of 54.9.

“It’s a staggering rise which suggests the services sector in the UK is in rude health,” said David Page, an economist at Investec. “It chimes with some of the upbeat surveys we’ve seen recently but is totally at odds with the official numbers.”

Markit said a composite index, which combines activity measures in the services, manufacturing and construction sectors, suggested the economy was on track to grow by 0.5 percent in the first quarter, up from 0.3 percent in the fourth quarter of 2009.

Britain’s services sector has expanded for the past 10 months, according to the PMI survey.

Official data has provided a much less upbeat picture than the sentiment and PMI surveys, with GDP figures showing Britain’s economy did not pull out of recession until the fourth quarter of last year.

BOE IN “WAIT AND SEE” MODE

The services PMI survey will be closely scrutinised by Bank of England policymakers ahead of their monthly policy decision on Thursday.

Britain’s central bank halted a 200 billion pound quantitative easing programme last month but made clear it was ready to resume asset purchases if the economy deteriorated.

Few expect such radical action will be called for, though many economists reckon the BoE will not hike interest rates until the fourth quarter of this year at the earliest.

“It reinforces our belief that the Monetary Policy Committee won’t extend QE tomorrow, but it doesn’t alter our view that interest rates will stay at 0.5 percent throughout the year,” said Howard Archer at Global Insight.

Recent evidence on the economy has been mixed. Retail sales fell sharply at the start of the year, depressed by a rise in VAT and unusually heavy snowfall, but many forward-looking indicators have been more upbeat.

A survey by the Nationwide Building Society on Wednesday showed British consumer confidence hit a two-year high in February and REC/KPMG figures showed a further pick-up in Britain’s job market last month.

The detail of the PMI survey was also encouraging. The new business index rose to 57.5 in February, its highest since September 2007, after slowing to a five-month low of 53.4 in January.

Editing by Susan Fenton, Patrick Graham, John Stonestreet

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