Service sector healthy despite slower growth

The nation’s apparent slide back into a double-dip recession was pooh-poohed today, as a closely watched survey found steady growth among the dominant services firms accounting for three-quarters of the economy.

The latest Chartered Institute for Purchasing & Supply/Markit activity index slowed from 55.3 to 53.3 in April, but still well above the 50 mark which signals growth.

Despite a weaker month for financial services, firms are still winning new business in a fiercely competitive climate. They also took on more staff and grew work backlogs for the first time in a year, the survey showed.

Markit chief economist Chris Williamson said: “From what we are hearing from panellists, this certainly does not sound like an economy in recession.”

The latest round of surveys come after the Office for National Statistics’ initial -0.2% verdict on growth in the first quarter officially plunged the UK back into recession.

The real surprise in the official numbers was the anaemic, 0.1% services growth despite more upbeat signs from the Cips surveys.

Although manufacturing and construction surveys also signalled an April slowdown, Williamson expects the official figures to be revised upwards eventually to show “modest growth”.

Cips chief executive David Noble said: “The development of backlogs offers further encouragement and has led to solid growth in employment, reinforcing this still tentative recovery.”

The Bank of England is inclined to pay more heed to business surveys than the ONS amid mistrust over official data on construction.

It had been expected to hold fire on a further, £25 billion burst of quantitative easing to stoke the recovery after March’s surprise inflation rise, although the latest signals of weakening growth could put it back on the table.

George Buckley, Deutsche Bank’s chief UK economist, said: “With the Bank set to revise down its forecasts for GDP in the upcoming inflation report following a worse-than-expected fourth quarter, today’s figures add to the risk of more QE at next Thursday’s policy meeting.”