UK economic data too ambiguous to call recession end

More ambiguous economic data yesterday added to the uncertainty about whether the UK is on the road to recovery or slumping back into recession.

The UK service sector grew for the second consecutive month in June, according to the purchasing managers' index (PMI) published by the Chartered Institute of Purchasing and Supply (Cips). But the pace of change was broadly flat – registering 51.6, a slight fall from May's 51.7. And the index – which is a leading indicator of economic activity – is still barely above the break-even "50" mark, undermining hopes of a speedy upturn.

Tentative signs of improvement last month led to calls that the recession had bottomed out, and the respected National Institute of Economic and Social Research estimated a return to GDP growth in April and May. But indicators have subsequently slipped back, and economists are divided: either the slowing is just a temporary blip, or it is the economy tipping back towards a "double dip", or W-shaped, downturn.

Cips indices for the construction and manufacturing sectors published earlier in the week paint a similarly mixed picture. The UK building sector contracted faster again in June than in the previous month. The manufacturing index recorded a marked lift, although not sufficient to take it above 50.

Taken together, the three indices point to a GDP contraction of about 0.2 per cent in the second quarter, according to estimates from Capital Economics. Vicky Redwood, a UK economist at the consultancy, said: "The latest numbers are a reminder that although there have been some green shoots, that doesn't necessarily mean we will now see strong economic recovery.

"The expectation for the second quarter is a lot better than the minus 2.4 per cent recorded in the first three months of the year, but it is still a long way from the 0.7 per cent rate that would be considered normal," she said.

Meanwhile, there were similarly ambivalent numbers from the UK housing market yesterday. British homeowners put more than £8bn-worth of equity into their houses in the first three months of the year, the biggest quarterly cash injection since records began in 1980, the Bank of England said. While the jump from £7.8bn in the last three months of 2008 may be partly explained by the UK's lowest-ever interest rates, it also reverses a decade-long trend to withdraw equity from houses to fund other spending.

Howard Archer, chief UK economist at IHS Global Insight, said: "The sharp turnaround from substantial withdrawals up to and including the first quarter of 2008 to a net injection of equity over the past year has added to the downward pressure on consumer spending."