Services Sector Bounces Back

In the strongest reading since September, the Markit/CIPS purchasing managers’ index for the services sector rose to 51.5 from 48.9 in December, when the sector shrank for the first time in two years. A reading of above 50 signals growth and this reading, which is higher than expected, comfortably separates growth from contraction.

The sector comprises around 75 per cent of the UK’s gross domestic product, including public services not included in the survey, so growth fuels hope that the country may avoid sliding back into recession.

With an almost palpable sigh of relief, an economist at Markit said that a return to growth of the service sector in January greatly reduces the likelihood of the UK falling back into a ‘triple-dip’ recession,

Growth in the service sector, combined with a tick-up in manufacturing and a fall in construction output, points to modest economic growth at the start of 2013 despite disruption from unusually poor weather.

In fact, stronger growth would inevitably have been recorded had the country not suffered the heavy snowfall, suggesting the underlying trend is even stronger than the Index numbers indicate.

The survey is likely to add to expectations that the Bank of England will opt against policy changes when it ends a two-day meeting on Thursday and will judge its existing monetary stimulus for the economy sufficient for now.

However, it remains to be seen whether service companies can build on their improved start to 2013, as they still face an uncertain business outlook and tightening government spending. In addition, there are still significant pressures on consumers, which are likely to limit the upside for their spending on services for some time to come.

As an accountant, Sarah Jenkins, specialises in management accounting, business development and financial reporting.

Posted in News.