Buoyant services firms fend off fears of a triple-dip recession

Sector's growth exceeds hopes with best performance since last summer

The chances of the UK escaping an unprecedented triple-dip recession improved yesterday after the services sector grew at its fastest pace for five months in January.

Services firms – ranging from banking to hotels and restaurants and accounting for more than three-quarters of the overall economy – saw output rise 0.3 per cent in January. This was the best performance since August, exceeding City hopes and coming despite heavy snowfall across the country.

Earlier data, particularly an alarming slump for manufacturing firms, heightened fears of the triple-dip after the economy shrank 0.3 per cent between October and December.

Updated forecasts from the Organisation for Economic Co-operation and Development think-tank also said that the UK would avoid a slide back into technical recession with annualised growth of 0.5 per cent – equivalent to quarter-on-quarter growth of just over 0.1 per cent – in the opening quarter of 2013. The Office for Budget Responsibility predicts a wafer-thin 0.1 per cent advance.

The more upbeat data from the Office for National Statistics (ONS) comes after survey evidence of the services sector's fastest growth for five months during February. January was boosted by a stronger showing from transport and storage firms as well as business services and finance, despite the snowfall leading to stagnant growth among hotels and bars, according to the ONS. The high street also impressed in February with sales growth of 2.1 per cent.

Chris Williamson, the chief economist with the data provider Markit, said the performance had "greatly reduced the risk of the UK falling back into a triple-dip recession". He added that the Bank of England's Monetary Policy Committee was unlikely to vote for more quantitative easing at next week's meeting.

But experts also warned that services firms were not out of the woods. The Centre for Economics and Business Research's economist, Daniel Skyte, said: "This year, ongoing recession in the eurozone will dampen the export potential of UK services firms. Moreover, with inflation remaining elevated and earnings growth remaining sluggish, consumer demand is likely to stay subdued. These two factors will make it difficult for the service sector to grow over the near term, constraining the UK's growth prospects."

The housing market also offered cheer alongside services as the lender Nationwide reported the first annual increase in average prices for more than a year. Although prices were flat month-on-month in March, at £164,630 on average, they were up by 0.8 per cent on a year ago, marking the first year-on-year rise since February last year.

The London market underpinned the advance, with prices up 15 per cent in the borough of Camden and in Cambridge, but down 10 per cent in Liverpool and Carlisle. On a regional level, London recorded the strongest annual growth, with a 4.6 per cent increase pushing average prices to a new high of £306,919.

The report adds to evidence that efforts to unblock the housing market through the Bank of England's Funding for Lending scheme are taking effect. The property market is likely to get a further boost from the Help to Buy scheme to increase high loan-to-value lending, although commentators have warned of the threat of a new housing bubble.