By Andy Bruce
LONDON (Reuters) – Britain looks on course to sidestep a forecast recession as businesses reported an unexpected bounce in activity this month as well as receding price pressures, according to a survey on Tuesday.
The preliminary “flash” reading of the S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI) jumped to 53.0 in February from 48.5 in January, above the 50 threshold for growth for the first time since July.
It surpassed all forecasts in a Reuters poll of more than 20 economists, which had pointed to a reading of 49.0.
Sterling rose against the dollar and British government bond prices fell on the back of the PMI, which bettered both French and German readings.
“Many expected the UK to be in recession by now, with the PMI now showing the end of a consistent trend of contraction over seven months,” said Rhys Herbert, senior economist at Lloyds Bank.
While Herbert said there was little to celebrate about Britain’s economy either, slowing inflation could help to forestall a recession.
The dominant services sector drove the improved reading, which financial data company S&P Global put down to recovering global demand and stability since the market turmoil associated with the brief premiership of Liz Truss.
Crucially for the Bank of England as it weighs another interest rate hike, the PMI’s price indexes – a good guide of future inflation pressure – continued to fall, with businesses’ costs rising at the slowest pace since April 2021.
The survey suggested that Britain’s economy may be in slightly better shape than many forecasters had predicted, although similar unexpected strong readings in the past have sometimes turned out to be blips.
“Much better than anticipated PMI data for February indicate encouraging resilience of the economy,” said S&P Global Chief Business Economist Chris Williamson.
“While many companies continue to report tough operating conditions, especially in the manufacturing sector, the broader business mood has been buoyed by signs of inflation peaking, supply chains improving and recession risks easing.”
Williamson added that the survey data boosted the likelihood of a BoE rate hike next month, something which most economists polled by Reuters already expect.
The PMI for the services sector rose to 53.3 in February from January’s 48.7, the highest reading since June last year.
Factory activity continued to contract but at a much reduced pace, with the manufacturing PMI increasing to 49.2 from 47.0, close to 50, the no-change mark.
Both the services and manufacturing surveys showed growing numbers of companies became more optimistic about their prospects in February.
A Barclays survey of small and medium-sized British firms similarly showed 41% were confident about the outlook – a nine-month high.
(This story has been corrected to change the month in the headline)
(Reporting by Andy Bruce; Editing by Susan Fenton and Catherine Evans)