© Reuters. FILE PHOTO: People walk past shops, with the City of London financial district in the background, in London, Britain, February 4, 2023. REUTERS/Henry Nicholls
by Andy Bruce
LONDON (Reuters) – Britain appears to be on track to fend off a predicted recession, as businesses reported an unexpected rebound in activity this month as well as easing price pressures, a survey showed on Tuesday.
The preliminary ‘flash’ reading for the S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI) jumped to 53.0 in February from 48.5 in January, above the growth threshold of 50 for the first time since July.
It beat all forecasts in a Reuters poll of more than 20 economists, which pointed to a reading of 49.0.
The pound sterling rose against the dollar and UK government bond prices fell thanks to PMI readings for France and Germany that improved.
“Many expected the UK to be in recession now, and the PMI now shows the end of a steady downward trend for seven months,” said Rhys Herbert, senior economist at Lloyds (LON:) Bank.
While Herbert said there wasn’t much to celebrate about the British economy either, slowing inflation could help prevent a recession.
The dominant services sector drove the improved reading, which financial data company S&P Global (NYSE:) attributed to a recovery in global demand and stability since the market turmoil associated with Liz Truss’s brief tenure.
Crucially for the Bank of England as it weighs another interest rate hike, PMI price indices, a good guide to future inflationary pressure, continued to fall, and business costs rose at the slowest pace since April. of 2021.
The survey suggested Britain’s economy could be in slightly better shape than many forecasters had predicted, although similarly unexpectedly strong readings in the past have sometimes turned out to be spotty.
“Much better-than-anticipated PMI data for February indicates encouraging resilience in the economy,” said S&P chief global business economist Chris Williamson.
“While many companies continue to report difficult operating conditions, especially in the manufacturing sector, overall business sentiment has been boosted by signs of a spike in inflation, improvements in supply chains and diminishing recession risks. “.
Williamson added that the survey data raised the likelihood of a BoE rate hike next month, something most economists polled by Reuters already expect.
The service sector PMI rose to 53.3 in February from 48.7 in January, the highest reading since June last year.
Factory activity continued to contract but at a much slower pace, with the manufacturing PMI rising to 49.2 from 47.0, near 50, the unchanged mark.
Both the services and manufacturing surveys showed that a growing number of companies became more optimistic about their prospects in February.
TO barclays The (LON:) survey of UK small and medium-sized businesses also showed that 41% were confident in the prospects, a nine-month high.
(This story has been corrected to change the month in the headline)