Services sector expansion boosts expectations

Markit Chief economist Chris Williamson. Picture: Contributed

The UK economy is set for another “robust” quarter after the dominant services sector defied the floods to report more strong growth in February.

Growth has now been recorded for 14 months and the latest rise in output was supported by a marked gain in new business. Confidence also strengthened to the highest for more than four years, according to the purchasing managers’ index (PMI).

Survey compiler Markit said the update points to the UK enjoying another quarter of robust economic growth of about 0.7 per cent.

The firm’s chief economist, Chris Williamson, said: “Most encouraging of all is the record increase in job creation that the three PMI surveys collectively signalled in February.

“With business confidence in the services economy rising further in February, growth should pick up again in March, adding conviction to the growing consensus that the economy is set for its best year of growth since 2007, with the rate easily surpassing the 1.8 per cent expansion seen last year.”

The headline reading of 58.2 in the closely-watched Markit/Cips PMI was the lowest since June, but still came in well ahead of the level of 50 that separates growth from contraction. The survey found that adverse weather in some parts of the UK disrupted activity, but that the relatively mild winter had also provided a support to growth.

The surprisingly swift revival has been largely driven by consumer spending and an upturn in the housing market, helped by government-backed stimulus packages such as Funding for Lending and Help to Buy. Five years of record low interest rates have also propped up spending, albeit at the expense of savers.

The UK economy grew by 0.7 per cent in the final quarter of last year, and Barclays economist Blerina Uruci said: “We now have PMI data for the first two months of the first quarter and, if the same pace of growth in February continued in March, the PMIs would be consistent with GDP growing by 0.8 per cent, slightly stronger than our forecast of 0.6 per cent.”