Britain’s economy grows at fastest pace in a year: PMI

BRITISH businesses reported a bounce in activity this month and the slowest input cost inflation in over two years, an industry survey showed on Friday (Apr 21), but price pressures still look strong enough for the Bank of England (BOE) to raise rates again next month.

The preliminary or “flash” reading of the S&P Global/CIPS UK Composite Purchasing Mangers’ Index (PMI) – spanning services and manufacturing firms – rose to 53.9 in April from 52.2 in March, putting it further above the 50 line denoting growth for the third consecutive month.

Friday’s PMI figure signalled the strongest growth since April last year. Economists polled by Reuters forecast a lower reading of 52.5.

“The key takeaway is that the economy as a whole is not only showing encouraging resilience but has gained growth momentum heading into the second quarter,” Chris Williamson, chief business economist at S&P Global, said.

The PMI was consistent with quarterly gross domestic product growth of 0.4 per cent, he added.

Last month the BOE revised up its forecasts to predict modest growth for the second quarter of 2023, though it still predicted a contraction in the first quarter of the year.

Britain’s dominant services sector drove the improved PMI survey, which S&P Global put down to resilient consumer spending on travel, leisure and entertainment, as demand for business services struggled.

The overall services PMI reached its highest in a year, coming in at 54.9 in April, up from 52.9 in March.

By contrast, the manufacturing downturn deepened. Factory production fell at the fastest pace since January and for the second month in a row, dropping to 48.5 in April, and the broader manufacturing activity index has been below 50 since August.

SEE ALSO

UK consumer confidence highest since Feb 2022 as ‘green shoots’ emerge: GfK

S&P Global’s input price index – a good guide of future inflation pressures – showed growth in costs for firms falling to the lowest since March 2021, although overall cost pressures remained high by historical standards.

Companies flagged higher staff wages and energy bills as the most common reason for cost pressures.

Williamson said the combination of faster growth and elevated price pressures means the BOE is likely to raise interest rates to 4.5 per cent next month.

The BOE increased interest rates to 4.25 per cent last month from 4 per cent, delivering its 11th back-to-back rate hike since December 2021 in an effort to combat double-digit inflation.

Britain’s consumer price inflation reached 10.1 per cent in March, coming in stronger than expected as food and drink costs surged.

A GfK survey of British consumer confidence on Friday rose to the highest since February 2022 in April, although it was still weak in historical terms.

Companies across the manufacturing and services sectors were more optimistic about their prospects over the next 12 months, with the degree of confidence about future output hitting the second-highest since March 2022. REUTERS