April 4, 2013 / 8:40 AM / 7 years ago

UK services grow strongly in March, recession likely avoided - PMI

LONDON (Reuters) - Britain’s services sector recorded its strongest expansion in seven months in March, concluding a quarter of growth that will have been mirrored in the wider economy, a survey showed on Thursday.

A doorman closes a taxi door outside a hotel in central London September 5, 2011. REUTERS/Toby Melville

The main Markit/CIPS Purchasing Managers’ Index (PMI) for the dominant service sector climbed to 52.4 in March from 51.8 in February.

The rise further above the 50 point line that divides growth from contraction confounded economists’ forecasts for a drop to 51.5 and was the highest reading since August, when the London Olympics boosted business.

“The government and Bank of England will breathe sighs of relief in seeing signs of a gathering upturn in the service sector during March, which looks set to have helped the UK avoid a triple-dip recession by the narrowest of margins,” said Chris Williamson, chief economist at survey compilers Markit.

The British economy shrank at the end of last year and another consecutive quarter of contraction would tip it into a third recession in less than five years.

Official data on how the economy fared in the first quarter is not due until April 25 but it looks to have made a decent start after an Office for National Statistics release showed the strongest growth in services in five months in January.

Services as measured by the ONS make up more than three quarters of British economic activity, but Markit’s survey does not include the public sector or retailers, focusing instead on areas such as transport and communication, business services and entertainment.

Nonetheless, March’s improvement in the services PMI offset contractions in manufacturing and construction and points to 0.1 percent economic growth in the first three months of 2013, Williamson said.

The central bank, widely predicted to refrain from extending its programme of asset purchases to support output on Thursday, is now even less likely to do so, although economists expect more action before the end of the year.

Moreover, Williamson said the economy was probably stronger than recent data suggested because unusually cold and snowy weather early this year hurt many businesses, whether by keeping consumers at home or disrupting deliveries to factories.

“We would therefore expect to see faster economic growth in the second quarter and, barring any surprises such as a further worsening of the euro zone crisis or severe weather, monetary policy is set to be on hold for the foreseeable future,” he added.

The latest expansion in the service sector largely reflected the sharpest increase in new business since May last year, as demand strengthened, with the sub-index rising to 54.1 from 53.8, Markit said.

Business confidence also rose to the highest since May, with nearly half of respondents forecasting growth in services.

- Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.

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For further information, please phone Markit on +44 20 7260 2454 or email economics@markit.com

Reporting by Olesya Dmitracova; Editing by Ron Askew and Hugh Lawson

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