Services growth may not prevent recession

Britain’s economy remains at risk of recession despite stronger-than-expected growth in the powerhouse services sector, analysts yesterday warned.

A jump in the Markit/Cips purchasing managers’ index for the sector to 54 in December from 52.1 the month before confounded expectations among economists for a fall to 51.5. It may also prove strong enough to prevent the economy slipping into contraction in the final quarter of 2011.

The report followed better-than-expected performances for the manufacturing and construction sectors in December.

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However, the Bank of England’s quarterly credit conditions survey – also published yesterday – showed that banks expect to apply stricter credit criteria and see credit demand dwindling across the board.

Markit chief economist Chris Williamson said the UK economy was likely to show little or no growth in the closing three months of 2011. He said: “Services are likely to have expanded by around 0.3 per cent to 0.4 per cent in the final quarter… to help the UK avoid a slide back into recession, at least for now.”

ING economist James Knightley said the recent PMI reports “offer some hope that there is still life in the UK economy”.

But he added: “Nonetheless, the UK is still very vulnerable to the eurozone sovereign debt crisis. We doubt the UK will be able to avoid a return to recession, albeit a mild one.”

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