Service sector bounce boosts UK growth hopes

After more grim economic tidings on the economy from the BCC, at least the latest service sector data contains a ray of hope. And no black swans.

by Dave Waller
Last Updated: 11 Apr 2011

Some good economic news for once: the latest Purchasing Managers’ Index from Markit/CIPS - the most reliable indicator of service sector confidence - rose to 57.1 in March, a ‘marked improvement’ on February’s 52.6. Apparently employment rose for the first time in nine months, while sales and new business enquiries were also up - which, according to Markit, could mean that we see economic growth in the region of 0.8% in the first quarter. So that's a step in the right direction. Although any interest rate rises (and, if you believe the IMF, the emergence of new 'black swans') could yet make this rally a short-lived one...

The PMI figures come as a welcome relief after the latest research from the British Chambers of Commerce, which reckons that recent output levels have only been 'marginally higher’ than they were before the pre-Christmas bad weather. Its study, of 6,000 businesses across the UK, found (more or less as you'd expect) that exports are strong, but confidence and domestic demand are suffering, while cashflow is proving a ‘real concern for business’. 80% of manufacturing firms said the cost of raw materials was putting pressure on them to raise prices.

Still, BCC chief economist David Kern reckons the Government and the Bank of England are on the right track; in fact, he warned that it would be a ‘massive mistake’ to raise interest rates any time soon, as it would ‘squeeze the fragile upturn’. With household debt still standing at about 150% of incomes, it's clear that higher debt and mortgage repayments would really hurt.

An equally cheery view comes from Dominique Strauss-Kahn, the head of the International Monetary Fund. As well as blaming inequality for the current economic woes, and urging pan-European solidarity on taxing financial services to help sort it all out, Strauss-Kahn told students in Washington on Monday that ‘numerous black swans are now swimming in the global economic lake’.

This may sound like a banker gone all David Attenborough. But Strauss-Kahn is channelling economic 'sage' Nassim Nicholas Taleb - the idea being that investors tend to ignore unpredictable high-impact events, with dangerous consequences. (Though far be it from us to point out that Black Swans are by their very nature unpredicted, so any prediction of their existence seems a bit odd).

The Office for National Statistics releases its first estimate of Q1 GDP on 27 April. Whether it’s positive like the CIPS, negative like the BCC or just simply warning us to expect things we didn’t expect, only time will tell.

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