Bloomberg News

U.K. Services Strength Signals Recession Averted: Economy

April 04, 2013

U.K. services unexpectedly strengthened in March, easing concern that the economy may be heading for a triple-dip recession.

A gauge of activity rose to 52.4, the highest in seven months, from 51.8 in February, Markit Economics and the Chartered Institute of Purchasing and Supply said today in London. Economists had forecast 51.5, according to the median of 26 estimates in a Bloomberg News survey. Readings above 50 indicate expansion.

While services grew last month, manufacturing and construction both shrank, and Markit said its three indexes point to economic growth of just 0.1 percent in the first quarter. Still, that would be enough for the economy to avoid a triple-dip recession. The Bank of England will leave its stimulus program unchanged today as officials assess the mixed economic data against a backdrop of above-target inflation, according to a Bloomberg survey.

The services index is “consistent only with measured growth,” Blerina Uruci, an economist at Barclays Capital in London, said in an e-mailed note. “The picture that emerges for the first quarter as a whole is one of subdued activity and fragile recovery.”

The pound remained lower against dollar after the report. It was at $1.5071 as of 10:37 a.m. in London, down 0.4 percent from yesterday. The yield on the 10-year U.K. government bond fell 1 basis point to 1.75 percent.

New Business

Both new business and payrolls at services companies rose in March, according to today’s report. The Confederation of British Industry said April 2 that U.K. financial firms may add 4,000 jobs in the first half of the year as companies anticipate increased sales.

The services report also showed that operating costs increased in March, with the degree of inflation remaining “marked.”

Markit Chief Economist Chris Williamson said services growth in March may have been held back by poor weather. He forecasts faster economic growth this quarter and, “barring any surprises such as a further worsening of the eurozone crisis or severe weather, monetary policy is set to be on hold for the foreseeable future.”

The BOE will probably keep asset-purchase target at 375 billion pounds ($565 billion) today, said 34 of 37 economists in a survey. All 50 economists in a separate poll say it will hold the key interest rate at a record low of 0.5 percent. The central bank announces its decisions at noon in London.

BOJ Expansion

The Bank of Japan (8301) decided today to increase monthly bond purchases to 7 trillion yen ($73 billion) in a bid to reach 2 percent inflation in two years. At the first meeting led by new Governor Haruhiko Kuroda, it also temporarily suspended a cap on bond holdings and dropped a limit on the maturities of debt it buys. The central bank set a two-year horizon for achieving the price goal under a “new phase of monetary easing.”

European Central Bank President Mario Draghi is under pressure to reveal new options to revive the region’s economy. A botched attempt to rescue Cyprus last month undermined confidence in the officials’ ability to tackle the debt crisis, and the prospect for a second-half recovery has receded.

The ECB will leave its benchmark interest rate at a record low of 0.75 percent today, according to 54 of 56 economists in a Bloomberg News survey, with the other two predicting a cut. The decision is due at 1.45 p.m. in Frankfurt and Draghi holds a press conference 45 minutes later.

Euro Weakness

A report today underscored the relatively weaker economic picture in the euro region, with a services gauge falling more than initially estimated. The index declined to 46.4 last month from 47.9 in February. That compares with an initial estimate of 46.5 on March 21. A composite gauge of euro-area services and manufacturing output dropped to 46.5 from 47.9.

“The recession is deepening once again,” Williamson said, referring to the currency area. “Businesses report that they have become increasingly worried about the region’s debt crisis,” he said, noting the political stalemate in Italy and the “botched” bailout of Cyprus.

Growth in China’s service industries accelerated last month, according to a report yesterday. The non-manufacturing Purchasing Managers’ Index rose to 55.6 from 54.5 in February, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said. A separate services gauge from HSBC Holdings Plc and Markit rose to 54.3, matching the highest since May, from 52.1. for “a sustainable fiscal structure.”

Elsewhere, a gauge of Australia’s services industry rose in March to the highest level in 14 months as interest-rate cuts boosted firms linked to household spending. Building permits and retail sales gained from a month earlier in February.

In the U.S., initial jobless claims probably fell to 353,000 last week from 357,000 in the previous period, economists said in a Bloomberg survey before data today.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

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


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