Instant View - UK service sector grows unexpectedly in January

LONDON (Reuters) - Business in Britain's dominant service sector returned to growth in January and optimism among companies jumped, a survey showed on Tuesday, reducing the chances of another recession.

ECONOMISTS' COMMENTS

ROB WOOD, BERENBERG BANK

"Risk of triple-dip recession receded substantially as (the survey reading) comfortably beat expectations. To be fair, a surge in the PMI was needed if the UK was going to avoid slipping back into recession. So it's surged from a three-and-a-half-year low to a level that a little bit below its average from the past 15 months, and over that period the UK hasn't grown at all.

"So, good news. It's great that it surged from 48.9, which would have signalled significant contraction. What it does is really confirm the UK is moving sideways rather than moving back or moving forwards decisively."

HOWARD ARCHER, IHS GLOBAL INSIGHT

"With the improved services sector survey coming on top of the BRC reporting surprisingly decent retail sales in January, it appears that the negative impact of the snow on the economy was limited and it is seeing modest underlying growth at the start of the first quarter. The risk of a triple-dip recession appears to have receded - temporarily at least."

"It is not just the fact that services activity was reported to have grown at the fastest rate for four months in January that was encouraging but also the generally improved tone of the survey. Incoming new business picked up which is supportive to further services growth in the near term at least. Further encouraging news saw service companies' expectations improve to an eight-month high in January while employment in the sector rose at the fastest rate since last July.

"However, there was not such good news on the inflation front for the Bank of England as prices charged by services companies rose to a 19-month high in January, although the increase was still modest. Input prices also rose at an increased rate."

PETER DIXON, COMMERZBANK

"We always suspected that the dip in December PMI was a bit of a blip, a one off, and that some sort of recovery was always on the cards. In that sense, I am not terribly surprised that the number has jumped.

"In conjunction with the decent manufacturing number which came out on Friday, the overall picture for the UK at least in the month of January looks rather brighter than had been the case, at least four weeks previously. So yes, there is a little bit more optimism around.

"I wonder if it's also a reflection of what's happening in the euro zone because the general sense is that some of the worst of the euro zone crisis is perceived to be behind us.

"The forecast (for the UK economy) is that we will start to see a bit more sustained growth over the course of 2013. We are certainly hoping this would be the first step along that road. But obviously there will be wobbles along the way."

JAMES KNIGHTLEY, ING

"The UK services PMI has bounced back into growth territory, dampening fears over an unprecedented triple-dip recession being called ... With the manufacturing index also in expansion territory, despite bad weather having provided some disruption, it looks more likely that the UK will post a modestly positive GDP reading for Q1 2013. Nonetheless, the data is volatile and confidence is fragile. While there is little prospect of any monetary policy change this week from the Bank of England, heightened euro zone worries and possible spending sequestration in the US could prompt a deterioration in the UK's growth prospects. As a result we still feel there will be more stimulus to come from the BoE."

VICTORIA CLARKE, INVESTEC

"It's something of a relief after December's contractionary reading. It looks now like December was much of a blip and coupled with the manufacturing PMI that we've have already, it does suggest the UK economy has started growing again in January which is certainly good news for all those fearing a triple-dip recession in the UK.

"I think it will give (the Monetary Policy Committee) enough reassurance to sit tight on policy. Had it been a very weak reading again then they may have had a more serious debate about whether to ease policy this time around. But this suggests that the December reading was a blip and again suggests that whilst Q4 GDP was weak, that is going to be reversed in Q1 with some growth seen."

CHRIS WILLIAMSON, MARKIT:

"A huge sigh of relief accompanies these numbers, as a return to growth of the service sector in January greatly reduces the likelihood of the UK falling back into a 'triple-dip' recession.

"Although construction remains a worry and continues to contract, the PMIs collectively point to the UK growing marginally again in January.

"Stronger growth would inevitably have been recorded had the country not suffered the heavy snowfall, suggesting the underlying trend is even stronger than these numbers indicate.

"The (service) sector looks to be on a renewed upswing which should help the economy grow again in the first quarter."

(Reporting by Olesya Dmitracova, Li-mei Hoang and Maria Golovnina)

Source: http://news.yahoo.com/instant-view-uk-sector-grows-unexpectedly-january-094427731--business.html

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