Britain's service sector staged a surprise return to growth in May, the monthly services PMI survey showed today, and the compiler of the survey said the economy as a whole could start expanding in the second quarter.
The headline services index rose to 51.7 from 48.7, beating analysts' forecasts of 49.2 and taking the index above the 50-mark that denotes growth for the first time since April 2008, according to the Chartered Institute of Purchasing and Supply/Markit survey.
The equivalent survey for the euro zone jumped to a seven-month high of 44.8 in May and Markit said if the current trajectory continued, growth in the sector would return by August.
The recovery in UK services activity propelled the composite index - which includes Britain's harder-hit manufacturing and construction industries - into above-50 territory for the first time since March 2008, and pushed sterling to a 6-month high versus the euro.
"If sustained, the rise in the PMI surveys into June would indicate an increase in GDP as early as the second quarter (albeit an extremely modest rise)," said Chris Williamson, Markit chief economist.
The data will be welcome news for Bank of England policymakers, who start their two-day policy meeting on Wednesday and are looking for signs that their hefty interest rate cuts and quantitative easing programme are working.
"Today's reading is probably the first genuine bit of good news on activity for many months, as opposed to 'less bad' data," said Colin Ellis of Daiwa Securities.
"And it will bolster hopes that the UK economy as a whole can start growing sooner rather than later - GDP may well still fall in Q2, but a rise in the third quarter is looking more likely by the day," he added.
The headline services sector PMI index had been below 50 since May last year, but is now at its highest level since March 2008 after hitting a record low of 40.1 in November, with firms highlighting improved market conditions and new contracts.
"Growth in May was supported by a gain in new business in line with rising market confidence, although reports of competitive pressures and subsequent price discounting to support sales indicated that the business climate remained tough overall," said Paul Smith, senior economist at Markit.
Business expectations rose to 69.8 from 64.6, taking them to their highest level since October 2007, and the new business indicator also moved into positive territory and its highest level since March 2008.
But the employment measure rose only slightly, remaining well below 50, and indicating that further heavy job losses are to come despite the brighter economic prospects.
For example, more than 4,700 General Motors Corp jobs are under threat at carmaker Vauxhall's factories in Ellesmere Port, northwest England, and Luton, north of London, after the third largest bankruptcy in US history.
Reuters