Modest growth is on the menu for dominant services sector

Published on 29/03/2012 20:24

Britain’s dominant service sector grew modestly in January, suggesting the country might avoid the mild recession forecast yesterday by the OECD.

Output from the sector, which ranges from banks to hotels and airlines, grew by 0.2 per cent after a 0.3 per cent increase in December, according to the Office for National Statistics.

While restaurants and pubs, retailers, transport and telecommunication service providers saw solid growth on the month, business services such as consultancies and financial services recorded falling output.

Britain’s economy contracted by 0.3 per cent in the fourth quarter 2011, and a rebound in the services sector – which accounts for over three quarters of the economy – is key for a return to growth.

Most economists expect a modest rebound of the economy in the first three months of this year after a string of more upbeat business surveys.

But the latest purchasing managers’ index survey for the service sector indicated that growth slowed in February, while a shock fall in industrial output in January and a drop in retail sales in February have reignited recession fears.

Yesterday the OECD broke ranks and issued a forecast that the UK economy would shrink by 0.1 per cent in the first quarter, placing it technically in a shallow, brief recession. The organisation said Britain world start a slow recovery in the second quarter.

Howard Archer, chief UK and European economist at IHS Global Insight, said he thought the latest forecast too pessimistic. He has pencilled in growth of around a quarter of one per cent.

But he added: “Whether or not the UK economy has grown in the first quarter, it is clear that it still faces serious domestic and international headwinds, and it is likely to remain prone to relapses over the next few months at least.”

Full OECD report