Services revival raises hopes of a return to growth

Britain's services sector rebounded in August, suggesting a return to economic growth in the third quarter could be on the cards.

The Chartered Institute of Purchasing &Supply said its activity index – where a score over 50 signals expansion – had come in at 53.7, up nearly 3 points since July and ahead of Cips' own forecast.

Services make up the overwhelming majority of the UK economy, so the Cips figures are potentially a significant pointer to future economic growth.

Ross Walker, an economist at Royal Bank of Scotland, said the economy could be seeing an Olympic bounce: "Some parts of the services sector were more obvious beneficiaries from the Olympics. The UK services numbers do not include retail where the more obvious weakness was, but do include transport and hotels and restaurants.

"It reinforces confidence that at least you would expect to take back output lost in quarter two. I'd say the risks are now to the upside to our forecast for 0.5 per cent quarter three GDP growth."

However, not all the numbers coming out of the Cips were positive. A separate activity index in the construction sector registered a score of just 49, which means contraction. Respon-dents said both public and private sector clients had trimmed their construction spending.