Bloomberg News

U.K. Services Index Jumps to 10-Month High as New Orders Rise

February 05, 2012

Feb. 3 (Bloomberg) -- A U.K. services index unexpectedly rose to a 10-month high in January as new orders increased and business confidence improved, a survey showed.

A gauge of services activity based on the survey of purchasing managers rose to 56 from 54 in December, Markit Economics and the Chartered Institute of Purchasing and Supply said today in London. A measure above 50 indicates expansion. The median forecast of 28 economists surveyed by Bloomberg was for a drop to 53.3.

While the U.K. economy contracted in the fourth quarter, recent data have shown some signs of improvement. Bank of England policy maker Adam Posen said in an interview yesterday that while there was still a case for the bank to add stimulus, he was “slightly more optimistic” than a few months ago. A report by Markit earlier this week showed that manufacturing unexpectedly returned to growth in January.

“A slide back into recession is now looking increasingly unlikely,” Chris Williamson, chief economist at Markit, said in the statement. “Much uncertainty persists, but this is nevertheless a far better start to 2012 than almost all were expecting to see.”

Business confidence gained the most in January since records began in 1996, today’s report showed. New business volumes increased the most since July.

‘Looking More Hopeful’

Today’s report “provides further evidence that the economic recovery is regaining momentum,” said Vicky Redwood, an economist at Capital Economics Ltd. in London. “It is looking more hopeful that the economy will expand in the first quarter and therefore temporarily avoid a technical recession.”

BT Group Plc, the U.K.’s largest Internet service provider, said today that third-quarter operating profit climbed 3 percent as it gained more broadband subscribers.

The improvement in business confidence echoes a report by GdK NOP released on Jan. 31, which showed that consumer confidence rose to the highest in seven months in January as slowing inflation eased pressure on shoppers.

Nevertheless, Bank of England Governor Mervyn King said last week that the recovery is likely to be “long and uneven” and that policy makers can increase stimulus if needed to guard against a “renewed severe downturn.” The U.K. economy contracted 0.2 percent in the fourth quarter, as the debt crisis in the euro area and the biggest fiscal squeeze since World War II dented confidence.

--Editors: Eddie Buckle, Jennifer M. Freedman

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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