UK May Dodge Recession As Industries Pick Up

The UK's service sector showed surprisingly strong growth in March, fuelling hopes that Britain may avoid slipping back into recession.

The Purchasing Managers Index (PMI) for the industry rose to 55.3 last month, up from 53.8 in February, according to the latest data from Markit and CIPS.

Last month's increase in business activity helped boost growth in the service sector over the first three months of the year to its highest level since the second quarter of 2010.

Service industries ranging from banks and telecommunication firms to restaurants, pubs and hairdressers make up almost three quarters of the UK economy.

The sector shrank slightly in the final quarter of 2011, but returned to growth in January.

The rebound in activity in Britain's dominant industry, combined with recent strong data in the manufacturing and construction sectors, suggested the UK economy grew by as much as 0.5% in the first quarter of 2012, the authors of the keenly-watched survey said.

That would mean the UK would miss a double-dip recession, with the economy bouncing back more strongly than many economists had predicted.

Chris Williamson, chief economist at Markit, said: "Faster growth of services activity in March indicates that the economy is on the up again, skirting recession as business continues to bounce back from the lull seen late last year."

The overall contraction of the UK economy at the end of last year in the wake of an escalation in the eurozone debt crisis had triggered fears of a renewed recession.

Last week, the Organisation for Economic Co-operation and Development warned that it thought the UK had gone back into recession in the first quarter of 2012.

But other data has been more optimistic and official GDP figures will be published later this month.

Speaking on Jeff Randall Live, Andrew Sentance, senior economic adviser to the professional services group PwC, said he would be surprised if there was a double-dip recession in the UK.

"We've had six business surveys this week all of which have been not very strong but reasonably positive," he said.

"And we somehow need to get the right balance between recognising that the economy is not growing particularly strongly but it is quite resilient."

Consumers will benefit from a pick-up in the UK's economy, Sir Richard Lambert, a former member of the Bank of England's Monetary Policy Committee and former Director General of the CBI told Jeff Randall.

"The hope would be that as the year goes on and as inflation - we hope - continues to slow down then the squeeze on real incomes, which is what really shocked us all last year and knocked household consumption back by record numbers, will come off a bit," he said.

"People will become a bit more confident and a bit less harassed as they go forward."

The PMI data also showed service firms' confidence about the year ahead stayed near February's level, which was the highest in a year.

Mr Williamson said: "What's particularly encouraging is that this revival of business confidence is encouraging firms to take on more staff.

"However, this is no runaway recovery. Although on the rise, job creation and inflows of new business continue to run well below rates generally seen in the years prior to the financial crisis."