Key service sector bounce could pull UK out of recession

BRITAIN could yet emerge from recession in the third quarter of the year after its powerhouse service sector bounced back over the summer.

Official figures yesterday showed that output from the sector, which accounts for about three-quarters of UK gross domestic product (GDP), rose by 1.1 per cent in July.

It marked the biggest gain since May 2011 and followed a 1.5 per cent drop in June, which had been affected by the extra Diamond Jubilee bank holiday.

The Office for National Statistics (ONS) data comes after a key industry survey earlier this month indicated that the service sector recovery had continued into August.

The jump in the Markit/Cips purchasing managers’ index (PMI) from 51 in July to 53.7 last month topped even the most-optimistic forecasts. Any figure above 50 denotes expansion.

Taken together, the results suggest that the UK economy made a solid start to the third quarter, after GDP contracted by 0.4 per cent in the second quarter of the year.

Howard Archer, chief European and UK economist at IHS Global Insight, said: “The fact that the dominant services activity saw a decent rebound in July from June’s distorted drop is a significant boost to third-quarter growth hopes.

“It is now looking ever more hopeful that the economy will have more than recouped the 0.4 per cent GDP contraction suffered in the second quarter. In addition to the recovery in services activity, there was a healthy rebound in industrial production and much reduced trade deficit in July.

“We have currently pencilled in GDP growth of 0.6-0.7 per cent quarter-on-quarter in the third quarter, but there is obviously major uncertainty over this and it is not unrealistic to think that it could come in higher,” added Archer.