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The UK’s services sector expanded at its fastest rate since July, research finds.

The latest Markit/CIPS index, a measure of economic activity in the sector, rose to 54 in December from 52 in November. The performance exceeds the forecast 51.5, despite a widely reported shortfall in retail sales over the Christmas period.

The services sector accounts for 74 per cent of UK gross domestic product.

Chris Williamson, chief economist at Markit says that the December survey rounds off a reasonable fourth quarter for the sector, which is likely to again provide the main stimulus to overall economic growth.

He says that services are likely to have expanded by around 0.3-0.4 per cent in the final quarter, down from 0.7 per cent in the third quarter but offsetting a renewed downturn in manufacturing and sluggish growth of construction to help the UK avoid a slide back into recession.

However, businesses are still concerned about the future, adds Williamson. ‘Companies are increasingly worried about the coming year, suggesting that the upturn may prove short-lived as we move into 2012. Expectations of business growth slipped to the joint-weakest since March 2009, with firms anxious about the impact of the Eurozone crisis and domestic austerity measures.’

Jeremy Cook, chief economist at foreign exchange company World First observes that the construction, manufacturing and services sector indexes have all exceeded expectations, despite the continued threat of a return to negative growth in the first half of 2012.

He says, ‘Recent earnings releases from the high street have shown that demand was not spectacular into Christmas and I’m worried that this move higher may be simply a result of price discounting. If that is the case it would be difficult to maintain into Q1.

‘The pound has stayed at 14 month highs versus the euro following this news.’

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