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February 10, 2012

Service sector growth suggests double-dip unlikely

The UK service sector grew at its fastest rate for nearly a year in January, helping to dampen fears of a recession, figures from the Chartered Institute of Purchasing and Supply (CIPS) have revealed.

The Markit/CIPS survey, where a reading above 50 indicates growth, showed that activity in the service sector climbed to a 10-month high of 56, up from 54 in December.

Employment levels in the sector also exceeded expectation by rising at the fastest rate in almost four years, fuelled by new business wins and bullish expectations of further growth.

The survey is widely followed by analysts and forecasters as the service sector is one of the UK’s key sectors, making up more than two thirds of the economy.

Commenting, Markit chief economist Chris Williamson said: “The surprisingly strong upturn in the service sector follows a similar improvement in manufacturing and ongoing growth in construction, which all points to a resounding revival of UK economic growth in January.

“The situation is certainly a lot brighter than in the final quarter of last year, when the economy contracted by 0.2 per cent, and a slide back into recession is now looking increasingly unlikely. This is a far better start to 2012 than almost all were expecting to see.”

However, the outlook among some small firms was still gloomy against the current backdrop of economic and political uncertainty, according to the Confederation of British Industry (CBI).

The business group’s recent SME Trends Survey, which polled 350 small firms, found that confidence levels among small and medium-sized manufacturers fell for the third quarter in a row in the three months to January, while a third expected to see reduced orders in the coming quarter.

Lucy Armstrong, chair of the CBI’s SME Council, said that rising concerns about the eurozone crisis had led to reduced confidence and stagnant output. “While figures for the next three months point to some stabilisation, the manufacturing sector is still facing significant headwinds, which can only add to existing uncertainty over demand and growth,” she said.