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Will the services sector lead the UK economy out of recession?

Despite news yesterday that the construction industry has contracted for the 22nd month in a row, today we saw news that the services industry in the UK has reported growth for the eighth month in a row. While these conflicting economic indicators are obviously causing unrest and uncertainty within investment markets, there is no doubt that the services industry is the most vital element of the UK economy and will effectively pull the UK out of recession.

Not only has the sector reported an increase in activity in December but the rate of increase in unemployment in the services sector has now slowed to an 18 month low. The vast majority of service companies in the UK also believe that the next 12 months will be very much more productive than the last 12 months which does bode well for the future. However, there is still a need for caution regarding the UK economy because each day brings a different set of figures and very different indicators.

The last 12 months have been perhaps the most difficult 12 months in which to the forecast the direction of the UK economy. One day we see a positive indicator in the retail sector and then the next day investors are deflated with bad news from the construction sector then we hear that the services sector is performing better than many had expected. This flip-flopping of economic data is making life very difficult for economic forecasters and hence there is much confusion within the UK investment community.

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