Rise in UK’s service sector is good news for economy

The Chartered Institute of Purchasing and Supply’s (CIPS) services survey has revealed that the services sector has risen for the first time in a year.

The sector, which makes up for more than two thirds of the economy, consists of services such as restaurants, cinemas, sports venues and leisure centres.

The survey’s headline reading rose from 48.7 in April to 51.7 last month - a good sign since the reading climbed above the key 50 mark.

The sector is closely monitored and boosts hopes that the worst of the recession is over.

According to Colin Ellis, the European economist at Daiwa Securities: “Today’s reading is probably the first genuine bit of good news on activity for many months, as opposed to ‘less bad’ data.”

“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,” added Mr Ellis.

In the first three months of 2009, the UK economy contracted by 1.9% and while analysts believe the economy will contract during the current quarter, it is expected to be at a slower rate - this was supported earlier this week when data showed that the downturn in the UK’s manufacturing sector is easing.

Furthermore, James Knightley of Capital Economics said it was “increasingly possible” that the UK could see positive economic growth in the third quarter of this year”.

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