BRITISH companies saw the strongest rebound in output in six months, reflecting more stable borrowing costs and higher demand for services, a survey of purchasing manager showed.

S&P Global said its composite Purchasing Manager Index rose for a second straight month in December to 51.7 from 50.7 the month before. That was above the crucial threshold of 50 indicating an expansion and above the reading of 51 economists had expected.

The figures along with separate reports showing a surge in job vacancies and stronger consumer confidence indicate resilience in the economy that may be contributing to inflation. The Bank of England wants to slow demand and upward pressures on prices and on Thursday (Dec 14) rebuffed speculation about lower interest rates.

“The UK economy continues to dodge recession, with growth picking up some momentum at the end of the year to suggest that GDP stagnated over the fourth quarter as a whole,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “The service sector’s resilience and sticky inflation picture will add to speculation that it’s too early for the Bank of England to be talking about cutting interest rates.”

UK bonds pared gains after the release of stronger-than-expected services data, with the yield on 10-year notes trading around 3.76 per cent from 3.73 per cent prior. The pound was steady after falling as much as 0.2 per cent earlier.

The more positive UK figures are also a sharp contrast with the eurozone, where PMIs earlier today worsened, raising the risk of a recession in the second half of the year there. The strength in Britain is also feeding inflationary pressures.

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S&P said rising pay growth in the UK pushed up inflation in the costs companies report to the highest since August. Some firms responded by raising prices, while others discounted to remain competitive. Higher wage bills, together with economic uncertainty, prompted companies across the board to continue trimming staff numbers.

The improving mood in the services industry offset pessimism among manufacturers, where output fell at a sharper pace. The overall outlook for business next year improved to the highest since September.

Businesses reported an increase in new work for the first time since June as a pause in interest increases helped support demand. The recovery was modest as consumers hit by the cost-of-living crisis remain cautious with their spending, S&P said. GfK’s report on consumer sentiment showed a 2 point advance in December to minus 22, a reading that indicates confidence is still shaky.

S&P’s data showing a rebound in new work was limited to the service sector of the economy. Manufacturing output shrank for the 10th straight month and at a faster pace than in November. Falling customer demand and stricter inventory rules led to a decline in volumes for goods producers. BLOOMBERG