UK returns to growth with services sector recovery

THE UK’s return to growth was underlined today as revised figures confirmed the dominant services sector helped the economy expand by 0.3% in the first three months of the year.

George Osborne: optimism that the economy is healing. Picture: AFP

Services shook off the freezing start to the year, with a recovery from hotels and restaurants helping the sector grow by 0.6% in the first quarter, the Office for National Statistics (ONS) said today.

An even stronger resurgence in North Sea oil and gas production also helped offset another dire quarter from Britain’s building sites and more weakness in the manufacturing sector, helping the UK avoid a feared triple-dip recession.

Confirmation of a return to growth - after the economy shrank by 0.3% in the final quarter of 2012 - will add to Chancellor George Osborne’s optimism that the economy is “healing”.

Household spending edged up by just 0.1%, weaker than expected, but has grown for six successive quarters. It is now 1.3% higher than a year earlier, reflecting slowly improving consumer confidence.

Higher stock holdings by companies, up £2.5 billion on the quarter, also helped drive the rise in gross domestic product (GDP).

But Martin Beck, UK economist at Capital Economics, said the figures show a “continued absence” of rebalancing in the economy.

He said: “With employment and average earnings both dropping in the first quarter on their level in the previous quarter, the foundations for a sustained recovery, even one driven by consumers, still look pretty rickety.”

The ONS said the services sector, which makes up about three-quarters of the economy, has grown every quarter since the end of 2009, underlining the UK’s reliance on the industry.

Services output expanded 0.2% in March, the third consecutive monthly rise, it added.

The ONS said despite the coldest March for more than 50 years, when heavy snow blanketed much of the UK, “there was little evidence of the bad weather having a significant effect on the services industry”.

Hotels and restaurants increased output by 1% over the quarter, largely down to wholesale activities. Business services and finance industries’ output grew by 0.5%.

But construction slumped 2.4% to its lowest quarterly level since 2000 as work was hampered by the deep freeze.

However, first quarter production gained 0.2%, driven by an even stronger recovery from the mining and quarrying sector, up 4% compared with a first estimate of 3.2% growth. That was driven by a North Sea oil and gas production boost, after prolonged maintenance in the fourth quarter of 2012.

The ONS said: “The (production) bounce back in the final quarter of 2012 is evident.”

Economists believe the UK’s slow recovery will prompt the Bank of England to pump more money into the economy. However, it is expected to wait until the arrival of new governor Mark Carney in July before adding to its £375 billion quantitative easing programme.