UK Recession: Optimism Up Despite 'Slowdown'

Business in the UK's powerhouse service sector grew more slowly than forecast in April but hiring and confidence are both on the rise, according to a closely watched survey.

The Markit/CIPS Purchasing Managers' Index (PMI) for services, which make up about 75% of the economy, showed its lowest reading since November.

Combined with slower growth in manufacturing and construction, the PMI data could help tip the Bank of England into overcoming its reluctance to pump more money into the economy through its programme of asset purchases, known as quantitative easing.

A slide in construction output and a weak services sector were blamed for a surprise 0.2% dip in gross domestic product (GDP) between January and March.

After the fall of 0.3% in the previous quarter, the UK tumbled into its first double-dip recession since the 1970s though many economists expect the figure for the first quarter of 2012 to be revised upwards.

The mixed picture for the economy in terms of current activity is backed somewhat by the latest forecasts from the CBI.

While the leading business organisation has cut its GDP growth estimate for 2012 from 0.9% to 0.6%, it is predicting a "pick up" in the recovery over the rest of the year.

The lobby group, which represents some 240,000 UK companies, agreed with another key finding of the PMI that optimism among businesses is increasing - reaching a two-year high last month according to the survey.

Markit's chief economist, Chris Williamson said: "From what we are hearing from panellists, this certainly does not sound like a recession."

John Cridland, CBI director-general, said: "Optimism among businesses has been increasing since the turn of the year, with manufacturing demand holding up and that is beginning to translate into more jobs and investment."

But Mr Cridland warned the global economy continued to pose a number of challenges, including eurozone worries, high oil prices and fragile household confidence.

The CBI also stated its belief that falling tax receipts as a result of the weaker than expected economic growth will mean the Chancellor misses key borrowing targets.

It forecast that public sector borrowing will be £8bn higher than forecast by the Office for Budget Responsibility, at £128.2bn in 2012/2013.