Growth in services sector suggests UK is likely to avoid a technical recession

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s PMI services figures:

  • Services activity continued increasing in February 
  • But the sector still faces a challenging business environment
  • A technical recession will probably be avoided, but the outlook is dominated by downside risks 

“Despite a fall in the headline balance from last month's high, it's encouraging that the services PMI indicated another month of solid growth in activity. The strength of the orders pipeline also suggests that output may continue growing in the coming months.
“However, as with the retail sector, heavy discounting appears to be one of the main drivers of output growth. Underlying demand is still fragile and companies are having to accept lower margins in order to secure business. The services sector still faces a challenging environment and we are seeing a slow grind towards recovery.
“These figures, along with the encouraging manufacturing figures last week, suggest that a technical recession will probably be avoided after all, with GDP likely to post a small increase Q1. However, the outlook further out is still dominated by downside risks, stemming from the Eurozone crisis and the potential for an increase in oil prices.”