UK Business Activity Expands for Fifth Month in Sign of Recovery

(Bloomberg) — Britain’s private sector firms continued to report output growth, adding to evidence that a rebound from last year’s recession is underway.

S&P Global said its composite purchasing managers’ index registered 52.9 in March, a marginal decline from 53 in February. It was lower than the reading expected by economists but above the crucial threshold of 50 signaling growth for a fifth month.

The figures are the latest indication that the UK economy is growing moderately again after a mild recession last year. But they also indicated persistent inflationary pressures that the Bank of England is seeking to curtail, holding interest rates at a 16-year high.

“A further robust expansion of business activity ended the economy’s best quarter since the second quarter of last year,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a report Thursday. The PMI reading suggests UK GDP is on track for a 0.25% rise in the first quarter, he added.

What Bloomberg Economics Says …

“The British recession is over. That’s the takeaway from the latest composite PMI survey despite a slight retreat in March. Still, the tiny dip in the composite PMI is a reminder that the outlook remains fragile. We expect growth to remain subdued in 2024.”

—Niraj Shah, Bloomberg Economics. Click for the REACT.

Economists and investors expect the BOE to keep the key rate at 5.25% when the latest decision is announced at 12 p.m. in London. The PMIs were little changed from a month ago, suggesting the economy is evolving about the way the central bank forecast last month.

S&P said manufacturing output rose slightly for the first time since February 2023. The expansion in services activity softened due to lower demand from households feeling the squeeze from the cost-of-living crisis.

While services providers posted a drop in confidence, optimism in the manufacturing sector hit the highest since April 2023. Businesses are expecting higher sales over the year thanks to citied improving consumer confidence, easing inflation and the prospect of rate cuts in 2024.

Inflation remains a concern for businesses reporting spiking input costs. Higher wage pressures impacted the services sector, while manufacturing businesses faced increases in freight costs and commodity prices.

“Stubbornly sticky service sector inflation has persisted into March, exacerbated by renewed inflation in the manufacturing sector,” Williamson said. “March’s PMI warns of elevated underlying price pressures which will likely add to calls

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