Figures offer fresh hope of end to recession

Hopes that the UK pulled out of recession in the final quarter of 2009 were fuelled today after survey figures revealed an eighth month of growth in the key services sector during December.

The latest activity index from the Chartered Institute of Purchasing and Supply (CIPS) - where a score over 50 indicates growth - showed a reading of 56.8, up from 56.6 in November.

Today's data also signalled an improving picture for the sector's hard-hit jobs market as employment fell at the slowest pace for nearly a year-and-a-half.

And there was greater optimism for the year ahead among services firms, with companies confident that business activity will be higher than now in 12 months' time, according to the CIPS report.

The positive reading has reinforced expectations that the UK recession ended in the fourth quarter of last year, given the dominance of the services sector in the economy - making up about 70 per cent of gross domestic product (GDP).

It is the latest cheer after a week of upbeat figures on manufacturing, mortgage lending and the Bank of England's £200 billion efforts to aid the economy.

Manufacturers enjoyed their best month for two years during December, CIPS said earlier this week.

The number of mortgages approved for house purchase in November also reached the highest level since March 2008, while the Bank of England confirmed much-needed signs that its quantitative easing programme was helping increase the broader money supply.

Vicky Redwood, senior UK economist at Capital Economics, said today's services sector figures "provided further evidence that the economy moved decisively out of recession in the fourth quarter".

"However, the recovery is likely to struggle to maintain its recent momentum," she cautioned.

December's service sector growth comes after new business levels rose to their highest level since September 2007, at a reading of 57.

Reports of a strengthened business climate, the release of previously delayed expenditure and increased marketing helped business activity, said CIPS.

The overall growth was led by large companies in the business services sector, such as accountancy, legal and marketing firms.

Services companies kept output prices low despite being faced with the highest input costs in 14 months as they sought to remain competitive, the survey found.

While optimism has increased in the sector, there remain concerns over the impact of Government action to cut its ballooning public deficit.

CIPS said firms polled were worried that public expenditure cuts would have an adverse effect on the UK economy.

Experts added the recovery could be slow moving in 2010, although fears of a "double dip" recession are receding.

Owen James, economist at the Centre for Economics and Business Research, said: "The figures released this week support our view that the UK will have returned to growth in the last quarter of 2009 and that this recovery, although sluggish, will continue into 2010."