Service sector still showing very few signs of life

The good news is that the service sector is still growing. But only just, and not as much as it was in January...

by James Taylor
Last Updated: 19 Aug 2013
The latest data on service sector activity isn't very encouraging: the biggest part of our economy barely grew at all in February. After a relatively good result in January, some had hoped that the sector was starting to see some genuine green shoots of recovery - but it looks increasingly like that was just a post-snow bounce. That doesn't bode well for our chances of recording decent GDP growth in the current quarter. Though it might buy the Bank of England a bit of time...

The data comes from the CIPS/ Markit monthly survey, the most highly-regarded gauge of service sector activity. And although the index was at 52.6 in February - above the 50 mark that indicates growth - that was below the City's forecast of 53.5, and well down on the 54.5 recorded in January. So it looks as though the latter figure wasn't a sign of massive progress after all - more a reflection of pent-up demand after the cold snap. In fact, if you look back over the last three months as a whole, activity has been more or less flat.

So what does this mean for GDP? Well, the most recent data had actually been pretty positive: the manufacturing sector is powering ahead at a record rate, according to the latest figures, while construction is also growing at its fastest rate for eight months. However, these two areas are relatively small as a percentage of GDP, whereas the service sector accounts for about three-quarters of output. So if today's data are anything to go by, the chances of getting a healthy Q1 growth figure - following the dismal -0.6% figure last quarter - are looking slimmer by the day.

It wasn't all bad news today: the CIPS/ Markit survey also found that companies are feeling more positive about the next year than they have been for nine months, while the new business stats are also encouraging. But it's clearly going to be a long, hard slog. Unless the services sector picks up substantially in the next couple of months, the Bank may not need to put interest rates up in the summer after all.

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