Britain's dominant service sector grew modestly in January, official data showed on Thursday, raising the chances that the overall economy can avoid a renewed recession.

The output from the sector ranging from banks and hotels to airlines grew by 0.2 percent after an 0.3 percent increase in December, the Office for National Statistics said.

While restaurants and pubs, retailers, transport and telecommunication service providers saw solid growth on the month, business services such as consultancies and financial services including banks recorded falling output.

Britain's economy contracted by 0.3 percent in the fourth quarter 2011, and a rebound in the services sector - which accounts for over three quarters of the economy - is key for a return to growth.

The ONS said services output grew by 0.3 percent in the three months to the end of January compared to the previous three months after shrinking 0.1 percent in the final quarter of 2011.

Economists expect a modest rebound of the economy in the first three months of this year after a string of more upbeat business surveys.

The Purchasing Managers' Index (PMI) survey for the service sector indicated that growth in the industry slowed in February, and a shock fall in industrial output in January and a drop in retail sales in February reignited recession fears.

Separately, the statistics office reported that productivity across all sectors of the economy fell 0.7 percent in the fourth quarter on an output per hour basis.