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Services Sector Boost Lifts Hope Of Uk Recovery

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Britain’s services sector enjoyed its fastest growth for nearly two years during August, reinforcing hopes that the economy is pulling out of recession, figures revealed yesterday.

The Chartered Institute of Purchasing & Supply (CIPS) reported a reading of 54.1 for the services sector Purchasing Managers’ Index in August — where a figure above 50 indicates expansion and one below 50 a contraction.

That was up from 53.2 in July and better than the 53.9 predicted by City economists — and means activity in the services sector has now increased for four months running. The August figure for the survey, which covers almost 40 per cent of the UK economy, was the best since September 2007.

The figures suggest that Britain’s services sector fared better in August than its counterparts in construction and manufacturing. PMI data for those sectors, published earlier this week, showed a decline in activity during August in both — with manufacturing, which had enjoyed an expansion in the previous three months, slipping back into negative territory.

Sterling immediately rose against both the US dollar and the euro after publication of the figures.

Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, said that the figures — which follow last week’s confirmation that the UK economy contracted during the second quarter of 2009 at a slower rate than previously thought — were encouraging.

Mr Goodwin said the figures provided further evidence that the UK economy was firmly on the road to recovery. He said they suggested that the recession would end during the current quarter. He added: “It is particularly encouraging that most aspects of the survey have strengthened, with the balances for new orders and business expectations suggesting that firms have confidence in the durability of the recent upturn.

“Nevertheless, it is important not to get too carried away. The economy is coming out of a deep slump and the recovery is at a very early stage, built upon fragile foundations. The labour market is continuing to deteriorate, with this survey pointing to further job losses, and this is likely to prevent any significant take off in consumer spending. Credit conditions also remain restricted, as highlighted by the poor lending data for both consumers and businesses released ... this week.â€

Paul Smith, economist at Markit — which compiled the report for the CIPS — said: “The latest services data leave the UK economy on track for growth in the third quarter, although there will remain doubts over the sustainability of expansion.â€

Yeah go recovery or maybe not, the situation is clearly getting worse and we appear to be in the lull before the storm.

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