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UK business activity expanded more than expected in February fuelling hopes that Britain’s recession could already be over, according to a closely watched survey.
The S&P Global flash UK PMI composite output index, a measure of the health of the private sector, rose to 53.3 in February, up from 52.9 in January and the highest since May 2023, according to data on Thursday.
This was also higher than the 52.9 forecast by economists polled by Reuters and above the 50 mark, which indicates a majority of businesses reporting rising activity.
The survey pointed to renewed price pressures, such as the shipping crisis in the Red Sea and sustained wage growth, which will support policymakers’ caution over cutting interest rates too quickly this year.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the results pointed to the economy growing at a rate of 0.2-0.3 per cent in the first quarter of 2024, “allaying fears that last year’s downturn will have spilled over into 2024 and suggesting that the UK’s recession is already over”.
But the survey also signalled supply chain delays were at their highest level for more than 18 months, linked to Red Sea shipping disruptions, which meant the selling price of goods rose at its fastest pace for nine months.
Service sector inflation also ticked up driven by higher wage costs, which boosted costs for businesses and resulted in rising output prices, according to the survey.
This comes as the Bank of England policymaker Megan Greene said on Thursday that she needed further signs that inflation pressures were easing before voting to cut rates from the 16-year high of 5.25 per cent.
Despite market pressure on central banks to cut rates, “I would need to wait to see more evidence that inflation wasn’t as entrenched as we may fear before I would be willing to vote [for a cut],” she said at a Kroll South Africa event in Johannesburg.
Green had stopped voting for higher interest rates at the start of the month, but has signalled she is wary of stubbornly high pay growth.
“With growth accelerating and prices on the rise again . . . policymakers are increasingly likely to err on the side of caution when considering the appropriateness of cutting interest rates,” said Williamson.
The results, based on interviews conducted between February 12 and 20, showed that growth was driven by the services sector, with an index of 54.3. Some respondents noted that boosted activity was due to less restrictive funding costs.
Manufacturing activity fell, continuing a 12-month trend. However, the rate of decline eased to the lowest level since November 2023.
Business optimism over prospects for the year ahead was at its highest level for two years, boosting an expansion in hiring.
The UK economy entered a technical recession in the second half of 2023, as GDP contracted by 0.3 per cent in the final quarter, official data showed last week.
However, the PMI results suggest the economy has already rebounded from the downturn.
The UK results were significantly stronger than those in the eurozone, where the composite PMI only rose to 48.9 in February, up from 47.9 in the previous month but still below to 50 mark.
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