Bank breathes sigh of relief as service rebounds

BRITAIN is likely to have escaped a ­triple-dip recession after its powerhouse services sector grew for a third month even though other areas of the economy remain in the doldrums.

Bank of England policymakers, who yesterday held back from restarting the money-printing presses, will have breathed a collective sigh of relief after the surprisingly robust services’ data, which came despite last month’s freezing weather.

The UK economy shrank in the ­closing months of 2012 and another consecutive quarter of contraction would tip it into an unprecedented third recession in less than five years. Official data for economic output in the first quarter is due later this month.

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Recent reports have suggested that the manufacturing and construction industries remain stuck in the mire – though together they account for less than a quarter of the economy.

Yesterday’s services sector survey, conducted by Markit and the Chartered Institute of Purchasing and ­Supply (Cips), pointed to solid growth in March.

An output index reading of 52.4 marked a further push above the 50 mark that divides growth from contraction and was the highest reading since August, when the Olympics boosted business.

Scott Corfe, senior economist at the Centre for Economics and Business Research, described the findings as “encouraging” and said a fresh recession should “just about be avoided”.

But, highlighting official output ­figures for 2012, he cautioned: “In ­contrast, output in the production and construction industries were 12.4 per cent and 14.5 per cent below 2007 levels respectively – hardly a sign that Britain’s economy is rebalancing towards ‘making things again’.”

Chris Williamson, chief economist at survey compiler Markit, said a triple-dip recession was likely to have been avoided by the “narrowest of margins”.

He added that stripping out the ­effects of heavy snowfall, which has disrupted many businesses, “the ­underlying recovery trend is likely to be stronger than the recent data ­suggests”.

Services as measured by the Office for National Statistics make up some three-quarters of British economic activity, but Markit’s survey does not include the public sector or retailers, focusing instead on areas such as transport and communication, business services and entertainment.

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The report will have been seen by members of the Bank of England’s monetary policy committee in the ­closing hours of yesterday’s rate-setting meeting.

As widely predicted, the Bank opted not to pump new money into the stagnant economy, despite a revised remit that gives it clearer leeway to disregard above-target inflation. The Bank kept its quantitative easing (QE) programme steady at £375 billion and also held ­interest rates at a record low of 0.5 per cent.

As usual it made no further comment on its decision, and will not publish minutes of the nine-member MPC’s meeting until 17 April.

Some economists believe the Bank will need to resume QE in coming months as Britain’s anaemic recovery struggles to gain momentum.

Allan Monks, economist at JPMorgan Chase Bank, expects more action next month.

Monks said: “Given the weak euro area backdrop, we believe the UK data would need to improve more decisively to talk the MPC out of doing more next month.”