Service sector rallies in January

Output from the UK services sector rebounded sharply in January, suggesting the economy made a stronger start to the year, figures show.

Output rose by 1.3% from the previous month, compared with a contraction of 1.1% in December, the Office for National Statistics (ONS) said.

All components that make up the sector saw rises in output.

Figures released on Tuesday showed that the UK economy shrank by 0.5% in the final three months of 2010.

This was slightly less than the previous estimate of 0.6%.

Hotels and restaurants gave the biggest boost to the services sector, with output rising 4.4% on the previous month, the ONS said in its report.

Transport, storage and communication saw output increase 1.7%, while business and financial services rose by 1.4%.

‘Weak recovery’

Analysts said the service sector figures suggested the economy would be stronger in the current quarter.

“Given the dominant role of the services sector, this is a significant boost to hopes that the economy has achieved a decent bounce back in growth,” said Howard Archer at IHS Global Insight.

“We currently forecast GDP to grow by 0.7% in the first quarter.”

However, some observers were less convinced of the impact an upturn in services in January would have on the overall economy.

“The level of activity is flat – the same as six months ago, so the state of the recovery is pretty weak,” said Samuel Tombs at Capital Economics.