Surprise services leap lifts hopes of triple-dip swerve

The UK is set to avoid a disastrous triple-dip recession after encouraging signs of a return to growth for Britain’s dominant services sector emerged today.

Services firms, ranging from IT and accountants to hotels and restaurants, are crucial to the fortunes of the wider economy as they account for three quarters of output. Official estimates showed the sector stagnating between October and December as the wider economy shrank 0.3%.

But the latest snapshot of services activity from the Chartered Institute of Purchasing & Supply, where a score over 50 indicates growth, hit 51.5 in January. This was much better than expected and the strongest since last September, despite snow affecting much of the country. Firms also took on staff at the fastest rate for six months and confidence is at its highest since last May, news which will cheer the Chancellor.

Taken with Cips’ other surveys on manufacturing and construction, survey compiler Markit said the economy grew at a quarterly pace of 0.1% last month, a slim advance but enough to avoid the unprecedented triple-dip.

Markit chief economist Chris Williamson said: “A return to growth of the service sector in January greatly reduces the likelihood of the UK falling back into a “triple-dip” recession.

“Stronger growth would inevitably have been recorded had the country not suffered the heavy snowfall, suggesting the underlying trend is even stronger than these numbers indicate.”

Cips chief executive David Noble struck a note of caution, however, adding: “Revivals in 2011 and 2012 dissipated pretty quickly, so firms will be hoping this is third time lucky and a stable foundation for growth.”

The survey should convince rate-setters on the Bank of England’s monetary policy committee gathering this week that no further stimulus is required for now, with inflation well above the 2% target at 2.7%. The MPC is also waiting to assess the impact of its Funding for Lending scheme to boost credit.

Economists also warned there was more work to do to get the economy motoring again. Citigroup’s Michael Saunders said: “Slight growth is far from satisfactory given the ample slack created by the severe recession of 2008/09 and limited recovery since then. In our view, the MPC and government should not be content until clear signs emerge of a sustained and rapid economic expansion that can clearly cope with the heavy fiscal drag planned for the next few years.”