Hopes that Britain could soon emerge from the worst of the recession rose yesterday as the slump in the services sector eased and businesses reported readier access to credit.

The positive signs are the latest in a raft of improved figures signalling that the pace at which the economy is contracting may be slowing. More positive reports are coming from manufacturers and this week saw a bounce in UK consumer confidence. The US has also produced increasingly upbeat news on factory orders and consumer spending and, despite the sharp rise in unemployment yesterday, the numbers were not as bad as some had feared.

However, analysts said that Britain was unlikely to be free from the grip of recession until the end of the year. City economists expect official figures this month will show that the economy shrank by 1.5 per cent in the first quarter, matching the sharp fall in output in the final quarter of last year. But the economic contraction is tipped to ease in the second quarter and over the rest of the year.

Yesterday’s figures from British service companies, which range from banks to restaurants and account for nearly 75 per cent of economic output, provided some evidence that the economy may be turning a corner.

Figures from CIPS/Markit showed that the closely watched gauge of activity at service companies rose to 45.5 in March, a six-month high, up from February’s 43.2. Although any figure below 50 indicates contraction, the pace of the decline has eased significantly since November’s low of 40.1.

Paul Smith, senior economist at Markit Economics, said the figures were “further evidence that the severe contractions in services output at the end of the last year may now be behind us”.

The positive data helped sterling to a seven-week high against the dollar. The pound peaked at $1.4815 yesterday, before paring these gains slightly in afternoon trading and the FTSE 100 index of Britain’s largest companies rallied 3.3 per cent during the week, breaching the 4,000 barrier for the first time in six weeks, buoyed by the economic boosts announced at the G20 summit.

There have even been faint signs of life in the housing market this week as the Bank of England reported a 20 per cent jump in mortgage approvals and Nationwide Building Society said house prices ticked up last month.

Figures from Halifax showed house prices still falling, but that the pace of decline had slowed. The value of the average home dropped by 1.9 per cent in March compared with a 2.3 per cent decline in February. The annual rate of decline also eased to 17.5 per cent, from 17.7 per cent in February.

Signs of improvement were also evident in a credit report from the Bank of England showing that banks were planning to lend more both to home-owners and businesses over the next three months.

Figures from the CBI showed one in six companies said they found it more, rather than less, difficult to renew their existing credit lines between January and March, compared with one in four in the three months to February.

However, Colin Ellis, European economist at Daiwa Securities, warned that while the new data was more positive, there was still economic turbulence ahead. “While the past week’s figures suggest that the foundations for an eventual recovery may be starting to be laid, we are not out of the quicksand yet, let alone out of the woods,” he said.

Evidence for this came from the services survey which heightened worries over jobs as businesses said they were shedding workers at a record rate. The gauge of employment fell to a survey low of 38.8 from 40.4 in March.

Some analysts forecast that unemployment in the UK could soar to 3.3 million next year, the highest since official records began in the 1970s.

Jobs fears were exacerbated as separate data showed that the number of businesses going bust in the first three months of this year rose by 35 per cent compared with the same period last year. Some 8,684 businesses went to the wall between January and March, up from 6,427 in the first quarter of 2008, figures from Equifax, the credit agency, showed.

Cider with John Lewis

— Strong fashion sales helped John Lewis to improved takings last week. Total sales in its 27 department stores were 2 per cent down against last year, compared with a 12.6 per cent fall in the previous week

— The department store group, which sheds light on the rest of the retail sector because of the extent of its non-food product range, is 6.6 per cent down in the first eight weeks of the year

— Fashion sales were up 13.1 per cent for the week ended March 28. Electricals were down 13.9 per cent and the home division was down 4.4 per cent

— Its Waitrose supermarket enjoyed a 16.7 per cent increase in sales, with cider doing well

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