UK’s service sector seeing light at end of tunnel

The business activity index in the U.K.’s service sector has shown an encouraging rise, according to the CIPS/Markit Purchasing Manager Surveys.  The surveys’ figures show an increase to 54.5 in January, up from 49.7 in December 2010.  A level of 5.0 indicates that activity is virtually flat, neither growing nor shrinking, so the change is positive, and analysts suggest that December’s low was mostly due to the weather.

The services sector accounts for about two thirds of Britain’s economy, and the inclination is to cheer the signs of economic recovery, but again, analysts warn that the upsurge is partially due to a weak pound, and if interest rates go up that factor will be at least partially negated.  A senior economist at Capital Economics, Vicky Redwood, said the apparent growth doesn’t necessarily mean that the recovery is going to be steady and consistent.  She indicated that a rise in interest rates is unlikely anytime in the coming year.

Howard Archer, UK and European economist for IHS Global Insight, noted that the surveys show a better outlook than expected, and that other sectors including construction and manufacturing also experienced improvement.  However, the man-on-the-street indicators remain rather pessimistic.  One of the few chains that has maintained relatively steady growth during the recession, John Lewis, reported that sales fell for the second week in a row, and car sales were down by 15.5% from a year ago.

Supermarkets also showed a worrying downtrend, with retailers such as Asda and Tesco reporting lower sales figures, though discount chains like Aldi and Lidl reported sales were up by an average of 9%.