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UK Jan service sector PMI indicative of growth


Latest index rises to a level of 51.5 from 48.9 in December

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The UK’s January Markit/CIPS Purchasing Managers' Index (PMI) for the services sector rose to a level of 51.5 from 48.9 in December, according to the latest reading released on Tuesday.

A reading above 50 is indicative of growth and the latest figure reverses last month’s decline when the sector was thought to have shrunk for the first time in two years.

Commenting on the reversal, Chris Williamson, economist at Markit, said, "A return to growth of the service sector in January greatly reduces the likelihood of the UK falling back into a 'triple-dip' recession."

"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," he added.

The service sector dominates the UK economy accounting for more than 75 percent of country’s GDP. Markit said stronger demand was behind the rise in the overall services activity adding that the survey’s employment index reached its highest since July. Additionally, a Markit/CIPS index measuring business expectations rose to its highest level since May.

Howard Archer, chief UK economist at IHS Global Insight, felt that in light of the recent survey data, the latest services sector PMI was pretty decent news on the UK economy.

"It appears that the negative impact of the snow on the UK 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," Archer told CFOWorld.

"Incoming new business picked up which is supportive to further services growth in the near term at least. Hence, 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," he concluded.

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