Brexit is helping Britain avoid the recession which is already gripping eurozone countries, a UK-based expert has said after the publication of new economic data.
Julian Jessop was commenting after the release of the figures showing Britain’s services sector saw the fastest jump in activity in December for six months, beating expectations.
The S&P Global/CIPS UK services Purchasing Managers’ Index (PMI) survey showed a reading of 53.4 in December, up from 50.9 in November. Previous estimates had shown a reading of 52.7. Any score higher than 50 indicates that the sector is growing.
Posting on X (formerly Twitter), Mr Jessop, Economics Fellow at free-market think tank the Institute of Economic Affairs, said: “Latest PMIs add to evidence that ‘#BrexitBritain’ is still dodging the #recession now engulfing the eurozone…
“Final UK composite output PMI (manufacturing and services) revised up to 52.1 in December.
“In contrast, the #euro index remained well below 50, at just 47.6.”
He added: “UK private sector firms are also increasingly upbeat about the outlook for the next 12 months, presumably reflecting the turn in inflation and interest rates.”
Nevertheless he cautioned that there was “still a sharp divergence between the optimism in #services and gloom in #manufacturing”.
Tim Moore, Economics Director at S&P Global Market Intelligence, said: “December data indicated that the UK service sector ended last year on a high, with business activity growth accelerating to its fastest for six months as the turnaround in order books gained momentum.
“The recovery in client demand was attributed to hopes of lower borrowing costs and an improving global economic backdrop in 2024. However, many firms continued to cite challenging underlying business conditions due to the stagnating UK economy and strong pressure on margins from rising labour costs.”
Business activity expectations for the year ahead were now the most upbeat since last May, supported by signs of a rebound in clients’ appetite to spend, Mr Moore stressed.
He added: “Staff hiring was the main weak spot in December, with hiring freezes yet to be lifted as service providers sought to maintain a tight grip on headcount.
“Strong wage pressures fuelled another month of substantial input cost increases in the service sector. Overall input price inflation picked up for the second month running, despite relief from lower transport bills and raw material costs.”
Also commenting on the figures, Jenny Etherton, Director, at PwC UK, says: “December’s PMI shows a surge in growth with a notable increase in business activity and incoming new work – the strongest in six months. This signals encouraging signs of business optimism with the potential of a turnaround in client confidence as new order volumes continued to grow.”
Services prices also increased to protect margins, mainly driven by pressure on wages, she pointed out.
She added: “Despite anecdotal evidence of this leading to hiring freezes and some redundancies, the good news is that firms are now able to absorb excess capacity with no detrimental effect on work backlogs. Removing this capacity will drive up productivity, but companies will also need to look to further adopt technology in order to sustain and build on these productivity improvements.
“Although inflationary pressures are clearly slowing, and there is hope for reduced borrowing costs in the coming year, people costs will be more difficult to address. If firms are to retain knowledge and talent, they cannot be complacent. Profitability cannot be sustained by demand alone; the focus still needs to be on taking out cost from their operations.”
Many firms had noted constraints on their pricing power due to squeezed budgets among households and businesses, Mr Moore said.
However, he concluded: “The latest survey indicated a robust rise in prices charged across the service economy amid efforts to defend margins, with the rate of inflation the fastest since last July.”
The survey is compiled by S&P Global from responses to questionnaires sent to a panel of roughly 650 service sector companies.
Survey responses are collected in the second half of every month and indicate the “direction of change” compared to the previous month.
A so-called “diffusion index” is calculated for each survey variable, comprising the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses.
Indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted.
