British services sector grows unexpectedly in May

Britain's services sector, which accounts for around two-thirds of the total economy, is growing again, a closely-watched survey found Wednesday, reinforcing hopes that the recession may soon be over.

The Chartered Institute for Purchasing and Supply and financial information company Markit said their monthly services sector purchasing managers' index _ a broad gauge of business activity _ rose to 51.7 in May from April's 48.7. The rise above 50, the first since April 2008, was unexpected.

May's reading, which was the highest since March 2008, suggests that the sector is growing again as any reading above 50 indicates expansion.

And purchasing managers seem to be even more optimistic about the future. The business expectations index rose to 69.8 in May, its highest since October 2007, from April's 64.6.

Following better than anticipated surveys into the manufacturing and construction sectors earlier this week, there are now mounting hopes that the British economy could be poised for an economic rebound in the second half of the year. In the first quarter of 2009, the British economy shrank by 1.9 percent from the previous three month period.

"If the rate of change in activity continues in this way, all three sectors could see a return to positive growth within the next few months ," said Benjamin Williamson, economist at the Centre for Economic and Business Research.

"This would mean an almost certain return to economic growth by the end of the year," he added.

The composite purchasing managers index, which combines all three sectors, rose to 50.4 in May, the first time it was above the crucial 50 balance since March 2008.

This week's surveys come as the rate-setters at the Bank of England begin their monthly deliberations. Though the nine-member panel is expected to continue with its policy of expanding the money supply and keep its benchmark interest rate from the current 0.5 percent, it is likely to note the improving trend in a raft of economic surveys over the last month.

Separately, further evidence emerged that the contraction in the services sector in the 16 countries that use the euro also eased in May. Markit said its equivalent indicator for the euro zone was revised up to a seven-month high of 44.8 in May from the initial estimate of 44.7. In April, the euro zone PMI stood at 43.8.

Though the dominant services sector continued to contract in May, the survey suggests the worst of the recession is over. In the first quarter, the euro zone economy was confirmed to have contracted by 2.5 percent, although the annual rate was revised Wednesday to a 4.8 percent drop from 4.6 percent previously.

Because of the better performances all round, the composite purchasing managers index for the three sectors was revised up to 44 in May from the initial estimate of 43.9.