Services show a return to growth

The corrugated economy continues.

The third of the UK PMIs has come in today (After construction fell and manufacturing rose), and the service sector is also seeing a return to growth, with the index recording a level of 51.5 (where 50 is equal to no change).

Markit economics, which produces the index, writes:

A return to growth of the UK service sector was signalled at the start of 2013 as volumes of incoming new business increased and companies boosted capacity by adding to their payrolls.

Confidence in the future also strengthened, reaching an eight-month high, but margins continued to be squeezed as output charges rose at a considerably slower rate than input costs.

Combined with the other PMIs, the picture remains far from rosy, but at least the UK appears to be stagnating rather than actively shrinking. It fits with the view of the economy becoming corrugated — flipping from mild growth to mild contraction with the overriding trend being stagnating. The all-sectors PMI, which aggregates the information in the previous releases, ought to confirm that tomorrow.

With services the most important sector of the UK economy — for better or worse — the return to growth is a "huge sigh of relief" according to Markit's chief economist Chris Williamson:

Stronger growth would inevitably have been recorded had the country not suffered the heavy snowfall, suggesting the underlying trend is even stronger than these numbers indicate.

With services companies’ confidence also picking up, new business rising for the first time in three months and hiring growing at the fastest rate for six months, the sector looks to be on a renewed upswing which should help the economy grow again in the first quarter.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Are the Conservatives getting ready to learn to love the EEA?

You can see the shape of the deal that the right would accept. 

In an early morning address aimed half reassuring the markets and half at salvaging his own legacy, George Osborne set out the government’s stall.

The difficulty was that the two halves were hard to reconcile. Talk of “fixing the roof” and getting Britain’s finances in control, an established part of Treasury setpieces under Osborne, are usually merely wrong. With the prospect of further downgrades in Britain’s credit rating and thus its ability to borrow cheaply, the £1.6 trillion that Britain still owes and the country’s deficit in day-to-day spending, they acquired a fresh layer of black humour. It made for uneasy listening.

But more importantly, it offered further signs of what post-Brexit deal the Conservatives will attempt to strike. Boris Johnson, the frontrunner for the Conservative leadership, set out the deal he wants in his Telegraph column: British access to the single market, free movement of British workers within the European Union but border control for workers from the EU within Britain.

There is no chance of that deal – in fact, reading Johnson’s Telegraph column called to mind the exasperated response that Arsene Wenger, manager of Arsenal and a supporter of a Remain vote, gave upon hearing that one of his players wanted to move to Real Madrid: “It's like you wanting to marry Miss World and she doesn't want you, what can I do about it? I can try to help you, but if she does not want to marry you what can I do?”

But Osborne, who has yet to rule out a bid for the top job and confirmed his intention to serve in the post-Cameron government, hinted at the deal that seems most likely – or, at least, the most optimistic: one that keeps Britain in the single market and therefore protects Britain’s financial services and manufacturing sectors.

For the Conservatives, you can see how such a deal might not prove electorally disastrous – it would allow them to maintain the idea with its own voters that they had voted for greater “sovereignty” while maintaining their easy continental holidays, au pairs and access to the Erasmus scheme.  They might be able to secure a few votes from relieved supporters of Remain who backed the Liberal Democrats or Labour at the last election – but, in any case, you can see how a deal of that kind would be sellable to their coalition of the vote. For Johnson, further disillusionment and anger among the voters of Sunderland, Hull and so on are a price that a Tory government can happily pay – and indeed, has, during both of the Conservatives’ recent long stays in government from 1951 to 1964 and from 1979 to 1997.

It feels unlikely that it will be a price that those Labour voters who backed a Leave vote – or the ethnic and social minorities that may take the blame – can happily pay.  

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.