Hopes of an economic recovery in the UK rose on Wednesday as the crucial services sector — including retail, transport, finance and food — showed its strongest growth in new orders for more than two years.
A monthly index of the sector, which makes up three-quarters of the British economy, showed that confidence rose to 56.8 last month, up from 56.6 in November. A mark above 50 signifies growth rather than contraction.
The data from the Chartered Institute of Purchasing and Supply (CIPS) fueled the belief that the economy might have returned to growth in the final quarter of last year, ending the longest and deepest recession in Britain’s postwar history.
“Last year saw the UK service sector recover at an extraordinary rate and end 2009 on a high,” CIPS chief executive David Noble said. “This was on the back of stronger economic activity, new business wins — especially among larger companies — and growing client confidence.”
“As the biggest contributor to the UK economy, services is undoubtedly heralding the way for wider economic growth in 2010,” Noble said.
Howard Archer, chief UK economist at IHS Global Insight, said the data “reinforces belief that the UK finally exited recession in the fourth quarter of 2009.”
However, he cautioned that it needed to be borne in mind that “in recent months the purchasing managers’ survey has been portraying a significantly healthier picture of the services sector than the [official] data.”
Noble said that despite the positive data, challenges still lay ahead for the dominant sector.
“On a more immediate level, fierce competition is preventing firms from offsetting input cost rises on to customers and increases in work haven’t prevented firms from shedding jobs again — despite murmurs of staff being overstretched,” he said.
Separately, the Office for National Statistics said on Wednesday that corporate profitability in Britain plummeted to an eight-year low in the third quarter of last year. The total net rate of return for non-financial corporations fell to 11.5 percent in the third quarter, from 11.7 percent in the second quarter.
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