Service sector powers UK away from a double-dip

Hotels, caterers, restaurants and gyms saw roaring trade as services firms - accounting for some three-quarters of the economy - enjoyed their fastest growth for 10 months, according to the latest Chartered Institute of Purchasing & Supply/Markit activity index.

The indicator - where a score over 50 signals growth - leapt from 54 to 56, the third successive month of improvement and the best since last March.

Confidence among bosses hit a 15-year high as firms saw the strongest influx of new orders in six months, sparking a hiring spree which saw the biggest rise in employment since March 2008.

Despite a 0.2% decline for the struggling economy in the final quarter of 2011, the UK should easily avoid a double-dip if the apparently rapid pace of growth is sustained over the next two months, according to Markit chief UK economist Chris Williamson.

He said: "A slide back into recession is now looking increasingly unlikely. The economy could well expand at close to trend rate (around 2-2.5% per annum) in the first quarter if business conditions hold up in the next two months... Much uncertainty persists, but this is nevertheless a far better start to 2012 than almost all were expecting to see."

The buoyant data leaves the Bank of England's rate-setters with a dilemma at next week's monetary policy committee meeting.

The Bank is expected to expand its programme of money printing, but signals of stronger growth may prompt it to opt for a £50 billion dose of quantitative easing rather than the £75 billion originally pencilled in by the City. The MPC restarted money printing efforts last October in response to the worsening debt crisis in the eurozone.

Even Capital Economics - among the biggest bears in the City on the economy's prospects - acknowledged the hopeful signs. Chief UK economist Vicky Redwood said: "The surveys have not been a foolproof guide to the official data recently, and other indicators - such as the Bank of England's agents' scores- have been weaker.

"Nonetheless, it is looking more hopeful that the economy will expand in the first quarter and therefore temporarily avoid a technical recession - although how long this pick-up lasts is another matter."