UK Services output rebounds in January after December snow

(Reuters) - Service sector activity rebounded in January after a snow-hit December to grow at its fastest monthly pace since July 2002, official data showed on Wednesday.

However, the Office for National Statistics said without weather distortions, growth would have been broadly flat over the two months as a whole.

The figures, which offer the first official glimpse of how the biggest sector of Britain’s economy fared in the first quarter of the year, supported the pound and pushed gilt futures to a session low.

“At face value it is quite robust,” said Alan Clarke, UK economist at BNP Paribas. “Growth in January has made up for the terrible December, but it is still early days to gauge the strength of first-quarter growth.”

Services output, which accounts for more than three-quarters of GDP, grew by 1.3 percent on the month following a 1.1 percent decline in December.

All five sub-sectors contributed to the recovery, with hotels and restaurants up 4.4 percent, transport up 1.7 percent, distribution up 1.4 percent, business services up 1.4 perce nt and government services up 0.7 percent.

Britain suffered its coldest December in a century and transport chaos took a heavy toll on the economy, spurring a contraction of 0.5 percent in the fourth quarter of 2010.

The strength of first quarter GDP figures, due for release next month, are expected to be crucial in determining how quickly the Bank of England raises interest rates from their current historic low of 0.5 percent.

The Bank is not expected to raise rates until May at the earliest, dropping behind the European Central Bank which is likely to hike in April.

“We suspect that the Bank of England will treat the spike up in services output in January with caution,” said Howard Archer at IHS Global Insight.

In the three months to January, service sector output was 0.5 percent lower than the previous three-month period, a slight improvement from the 0.6 percent drop recorded in December.

Year-on-year, services output was up 2.2 percent, rebounding from a 0.4 percent fall in December.