Strongest services for three years serve up optimism for economy

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The Independent Online

Activity in Britain's services industries, the dominant sector of the economy, grew at the fastest monthly rate for three years between January and February, Yesterday's figures will boost hopes that the recovery has gathered momentum in the first few months of 2010.

The Chartered Institute of Purchasing and Supply/Markit Index rose to 58.4 from 54.5 last month; a figure above 50 reflects growth. Part of the improvement was attributed to a rebound from January, when growth dipped as a result of the heavy snowfall across the country. Nonetheless, the authors of the report insisted that there was real growth in the figures.

"After the snow-related blip at the start of the year, the services sector is pretty much firing on all cylinders now," said David Noble, the chief executive of the CIPS.

"February saw business activity surge at its fastest rate in over three years as the sector helps to drive the UK economy further out of recession."

However, the services sector survey showed that job losses continued to rise, despite the uptick in growth. The CIPS and Markit said employment fell for the 22nd consecutive month.

"However, the rate of decline was only modest and remained much slower than the record seen in early 2009," Mr Noble added. "Job losses were largely the result of natural wastage and the non-replacement of leavers."

He insisted that if activity continued to grow at its current rate, employment levels would "hopefully" beginto rise. Despite the improvement, it is mostly larger companies that continue to lead the way, registering what the CIPS and Markit described as "a substantial increase in activity". Smaller firms, they said, continue to lag behind, "posting broadly no change".

The transport, storage and communication industries were the big winners in February, registering the strongest gains in both new business and activity.

The positive update comes just a day after the Cips/Markit construction sector numbers dampened spirits by remaining weak in February. Crucially, the construction sector index remained under 50, indicating that sentiment in that sector is more negative than positive. The overall reading of 48.6 slipped after a decline in new orders.

Despite the mixed picture, the strong report from the services sector, which accounts for around 70 per cent of the UK economy, was enough to stabilise the pound, which has been falling in recent days on fears of political instability.