UK Private Sector Growth Momentum Gains Strength

(RTTNews) - The UK private sector recovery gained strength at the start of the year, led by the rebound across the service economy, flash survey results from S&P Global showed on Wednesday.

The composite output index rose to a seven-month high of 52.5 in January from 52.1 in December.

The score was above the neutral 50.0 threshold for the third straight month and suggested the strongest output growth since June 2023.

The solid upturn was underpinned by the service sector activity that grew the most in eight months.

Respondents cited that the improved confidence as well as a turnaround in demand due to lower borrowing costs boosted services activity.

By contrast, the manufacturing activity continued to shrink, albeit at a slower pace.

The services Purchasing Managers' Index, or PMI, climbed unexpectedly to 53.8 from 53.4 in the previous month. The score was forecast to fall to 53.2.

At the same time, the manufacturing PMI climbed to a nine-month high of 47.3 from 46.2 a month ago. The reading remained above economists' expectations of 46.7.

Total new work grew at the strongest pace since May 2023 as improved optimism with regard to economic outlook supported business and consumer spending.

Nonetheless, export sales remained a weak spot.

There was a moderate increase in private sector employment, ending a four-month period of job shedding.

The survey showed another reduction in backlogs of work across the service sector in January.

Amid the Red Sea crisis, manufacturing supply chains were impacted by longer wait times for container freight in January.

The survey data pointed to the steepest lengthening of vendor delivery times since September 2022, ending an eleven-month period of steady improvement.

Supplier delays were linked to longer international shipping times as vessels rerouted away from the Suez Canal. Pre-production inventories dropped to the greatest extent since last August as safety stocks were depleted.

In the manufacturing sector, rising ocean freight rates lifted cost burdens to the highest since March 2023. Factory gate prices rose at the joint-fastest pace for eight months.

There was another steep rise in input prices in services activity due to strong wage pressures. But average prices charged posted a softer rise.

Overall prices charged by private sector firms grew at the weakest rate since last October.

The survey showed that businesses were more upbeat about the growth outlook for the coming year. The degree of confidence was the strongest since May 2023.

"The survey data point to the economy growing at a quarterly rate of 0.2 percent after a flat fourth quarter, therefore skirting recession and showing signs of renewed momentum," S&P Global Market Intelligence Chief Business Economist Chris Williamson said. The service sector is picking up steam and inflation is also proving sticky, ING economist James Smith said. Data also showed that the disruption in the Red Sea added freight costs.

Today's PMI data adds to the case for the Bank of England to wait a little longer before cutting rates, the economist noted.