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UK business activity grew marginally in November, easing fears of the economy contracting in the last three months of the year.
The S&P Global/Cips flash UK PMI composite output index, a measure of the health of the manufacturing and services sectors, rose to 50.1, from 48.7 in October, indicating a majority of businesses reported an expansion in output, the first since July.
The results were ahead of expectations, with economists polled by Reuters forecasting the index would remain unchanged at 48.
Although not seen as an accurate predictor of gross domestic product growth, the PMI indices are closely watched because they provide a near real-time indicator of the health of the private sector, compared with official data, which is published with a lag of several months.
The latest figures, based on data collected between November 9 and 21, will provide some relief about the economic outlook after official data this month showed GDP stagnating in the three months to September.
Samuel Tombs, economist at Pantheon Macroeconomics, said the figures provided “reassurance that the economy is not on the brink of a recession”.
The flash reading came after the Office for Budget Responsibility, the UK fiscal watchdog, cut the UK’s growth forecasts for 2024 on Wednesday to 0.7 per cent from its March estimate of 1.8 per cent.
The improvement in November was driven by a stronger than expected increase in the services sector index to 50.5, up from 49.5 in the previous month.
“The UK economy found its feet again in November as the service sector arrested a three-month sequence of decline and manufacturers began to report less severe cutbacks to production schedules,” said Tim Moore, economics director at S&P Global Market Intelligence.
He attributed the improvement to the easing of inflation and the end of interest rate increases. “Relief at the pause in interest rate hikes and a clear slowdown in headline measures of inflation are helping to support business activity,” said Moore.
This month, the Bank of England left interest rates unchanged at a 15-year high of 5.25 per cent for the second successive meeting, as inflation eased from a peak of 11.1 per cent in October 2022 to 4.6 per cent last month.
The latest PMI report found that companies cited strong budgets for technology investment and general spending on essential business services. In contrast, discretionary spending was weak as cost of living pressures continued to hurt household finances.
The survey also showed worrying signs of persistent inflation as both input costs and average prices charged increased at faster rates than in October. Service providers reported the sharpest rise in their average charges since July, which was overwhelmingly linked to higher staff costs.
The survey’s warning on inflation had an immediate impact on financial markets. Sterling, which had been strengthening against the dollar before the release of the PMI data, jumped 0.23 per cent to $1.253 almost immediately after its publication.
Interest rate-sensitive two-year gilt yields rose 0.11 percentage points to 4.71 per cent, reflecting falling prices, as the market pushed back expectations for the first BoE rate cut from June to August.
“Overall, today’s release will add to the [BoE]’s unease about the stickiness of inflation,” said Ashley Webb, economist at Capital Economics. He forecast that core inflation and wage growth would fall slowly and that the central bank would not be ready to cut rates until late next year.
