Services lift may help UK dodge double-dip

A "surprisingly buoyant" December for the dominant services sector may help the UK to avoid a double-dip recession, a leading forecaster said yesterday.

A broad-based pick-up in activity, led by hotels, restaurants and catering firms, saw the services industry grow at the fastest pace for five months, according to the Chartered Institute of Purchasing & Supply (Cips)/Markit. Its activity index, where a score over 50 suggests growth, jumped to 54 from 52.1 in December, the best since last July.

An upbeat month for manufacturers and builders left Markit's chief economist, Chris Williamson, predicting stagnation rather than outright contraction for the economy in the final quarter of 2011.

He said: "Services are likely to have expanded by 0.3 per cent to 0.4 per cent in the final quarter, down from 0.7 per cent in the third quarter, but offsetting a renewed downturn in manufacturing and sluggish growth of construction to help the UK avoid a slide back into recession, at least for now."

Optimism for 2012 is still in short supply, with business confidence mired at a two-and-a-half-year low.

Cips chief executive David Noble warned: "With a tough operating environment, little sign of stronger sustainable growth, and a great deal of uncertainty about prospects for 2012 weighing down on confidence, it appears unlikely that there will be any real motivation to hire new staff for some time."

The Bank of England is expected to launch more money printing next month after embarking on a £75bn round of quantitative easing last October. But some experts said the more upbeat tone of the recent releases could prompt the Bank to stay its hand.