Service sector growth hits 'three-year high'

Businesses in the service sector are becoming more confident

The service sector in the UK grew at its fastest monthly pace in three years in February, providing further evidence of the economy's recovery.

The Chartered Institute of Purchasing and Supply (CIPS) index rose to 58.4 from 54.5 the previous month, its highest since January 2007.

The index allayed fears among some economists that the UK could slip back into recession in the current quarter.

The service sector is a vital component of the UK economy.

Any index score above 50 indicates growth.

"It's a staggering rise which suggests the services sector in the UK is in rude health," said David Page at Investec.

The survey will ease concerns that the economy may have fallen back into recession this quarter Vicky Redwood, Capital Economics

CIPS said that job losses in the sector had slowed, while expectations among businesses remained positive.

"Though the VAT change and rising fuel prices continue to make their mark, service providers are feeling confident enough to raise output prices to partially offset this," said CIPS chief executive David Noble.

'Easing concerns'

Last week, revised figures showed that the UK economy grew by 0.3% in the final three months of last year, faster than previously thought.

An important reason for the upward revision was the strong performance of the service sector, where output rose by 0.5% between October and December, up from a fall of 0.3% in the previous quarter.

VAT was raised to 17.5% at the start of January after a temporary reduction to 15%. There are concerns that this, together with the decision taken last month by the Bank of England to stop pumping money into the economy, could hamper economic growth.

But Vicky Redwood at Capital Economics said: "The survey will ease concerns that the economy may have fallen back into recession this quarter."

Areas covered in the services sector include transport and communication, financial advice, computing and IT, and hotels and restaurants.