The UK economy could be “returning to growth” as output rises to a nine-month high, new data shows.
The S&P Global Flash United Kingdom PMI reported that business activity across the UK private sector has expanded for the fourth consecutive month – marking the fastest pace since May 2023 – driven by a robust upturn in the service economy.
Commenting on the data, Julian Jessop, economics fellow at free-market think tank the Institute of Economic Affairs, wrote on X, formerly Twitter: “More evidence that the UK economy has returned to growth…
“Flash #PMI Output Index rose again to 53.3 in February (from 52.9), a 9-month high.”
As per S&P’s Purchase Manager’s (PMI) Flash Output Index, Mr Jessop noted that while the increase is still being led by the services sector (unchanged at 54.3), the manufacturing recession is also “easing” (47.3, up from a three-month high of 45.5).
PMI output is a measure indicating the economic health of a country’s manufacturing sector based on factors like new orders, production levels, and employment.
Mr Jessop continued: “Main worry is the signs of renewed inflation pressures: both input and selling prices accelerated, largely due to higher labour costs and Red Sea disruption.
Addressing the question of how much weight the PMI should have, given the significant miss on GDP in Quarter Four (Q4), Mr Jessop said: “I suspect it’s mainly down to what’s not in the composite index, which ‘only” covers manufacturing and services.
“The exclusions include #retail (which slumped in Q4), public services (hit by strikes) and energy (all over the place).
“The composite index also excludes #construction – though the separate PMI for that sector was weak.”
However, he noted that he still believes the PMIs send “useful” and “relatively timely” signals on the areas covered.
Mr Jessop continued: “In short, the recent upward trend in the composite index is surely telling us something positive about Q1 2024 (and it might yet mean that the Q4 2023 data are revised up too).
“Finally, regardless of how much weight you want to put on the PMIs, the numbers for the UK are much better than those for the euro area.”
Commenting on the results, Chris Williamson, chief business economist at S&P Global Market Intelligence said: “UK economic growth has accelerated in February, with the early PMI survey data pointing to the largest rise in business activity for nine months.
“This is by no means a one-off improvement, as faster growth has now been recorded for four straight months after a brief spell of decline late last year.
“The survey data point to the economy growing at a quarterly rate of 0.2-three percent in the first quarter of 2024, allaying fears that last year’s downturn will have spilt over into 2024 and suggesting that the UK’s ‘recession’ is already over.
“It’s particularly encouraging to see that the upturn in growth has been accompanied by a surge in optimism about year-ahead prospects to the highest for two years, in turn encouraging a second month of increased employment.”
However, he noted: “With growth accelerating and prices on the rise again, February’s data mean policymakers are increasingly likely to err on the side of caution when considering the appropriateness of cutting interest rates.”
Official data recently revealed that the UK economy slipped into recession in the second half of 2023. Gross Domestic Product (GDP) contracted by 0.1 percent between July and September and further declined by 0.3 percent in the three months to December.
Britain’s economy is currently only one percent higher than its pre-COVID-19 level of late 2019, with Germany being the only G7 country performing worse.
