Economy shows signs of life

Britain's all-important service sector yesterday provided fresh hope that the country has finally come out of its worst recession since records began.

The latest activity index from the Chartered Institute of Purchasing & Supply showed a reading of 56.8 last month, up from 56.6 in November. It is the eighth month in a row that the index has been in positive territory. A figure of above 50 indicates growth.

Yesterday's figure is also 1.5 points above its average level, taken from readings since mid-1996, when the series started.

Economists were encouraged by the fact that the gains were broad-based with incoming and outstanding business, prices charged and input price indices all improving against November. Only the business expectations index was down.

The last week has also seen positive data on manufacturing and mortgage approvals. Economists widely expect fourth-quarter GDP figures will show that the economy returned to growth after being disappointed by the third-quarter figures, which initially showed a 0.4 per cent contraction, subsequently revised up to 0.2 per cent.

But anxieties remain about the recovery, with mixed data clouding the picture. The Office for National Statistics said yesterday that corporate profitability has now fallen to its lowest level for eight years.

The figures were released as the Bank of England's Monetary Policy Committee began its first meeting of 2010. Today, it is expected to keep rates on hold at 0.5 per cent and also leave the quantitative easing programme at current levels.

Deutsche Bank economist George Buckley said: "Quarter four should be the first quarter that output expands again, if these surveys are to be believed. Of course, the PMI surveys in the third quarter of last year also suggested an expansion in GDP but that failed to materialise, so it is important to treat any forecasts with some caution."