U.K. Services Sector Expands Further

Activity in the U.K.’s dominant services sector expanded for the eighth straight month in December as new orders rose at the fastest pace since September 2007, suggesting the country’s economy finally emerged from recession in the final quarter of 2009, data showed Wednesday.

Research group Markit Economics and the Chartered Institute of Purchasing and Supply said the services purchasing managers index rose to 56.8 in December from 56.6 in November. The modest rise in activity surprised economists, who had expected the figure to remain at 56.6, according to a Dow Jones Newswires survey.

A reading above 50 indicates the sector is expanding, while a reading below 50 indicates it is contracting.

The pound rose on the data, jumping 20 basis points against the dollar to $1.6022 in early trading.

Economists said the data indicate that the U.K. economy probably emerged from recession in the fourth quarter of 2009. Preliminary fourth-quarter gross domestic product figures are due later this month.

“December’s data confirmed that the U.K. service sector recorded robust growth during the final quarter of 2009, remaining consistent with a quarterly expansion on the official measure of above 1%,” said Paul Smith, senior economist at Markit.

“With new business rising at the strongest pace since September 2007 and expectations relatively high, the fundamentals remain in place for further solid gains in activity at least in the near-term,” he said.

A breakdown of December’s data showed broad-based strength across the sector, with the new orders index jumping to 57.0 from 56.8, the fastest pace of growth since September 2007. Large firms posted the strongest growth, and a number of companies reported that new business had tested capacity, Markit said.

However, some economists remain skeptical about the PMI data series as it had previously indicated that the U.K. economy would expand in the third quarter, when in fact it contracted by 0.2%.

“It needs to borne in mind that in recent months the purchasing managers survey has been portraying a significantly healthier picture of the services sector than the hard data,” said Howard Archer, an economist at IHS Global Insight



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