Hopes that the economy can ride out surging inflation and a downturn on the High Street were given a boost today by a survey showing business activity at its highest level for a year.
The keenly watched S&P Global/CIPS PMI index rose from 52.2 in March to 53.9 in April, the third consecutive month of recovery. A reading above 50 points to an increase in output and suggests GDP grew during the month.
The index came on the same day as disappointing official retail sales showing a 0.9% fall in March, a dramatic turnaround from growth of 1.1% in February. Economists blamed wet and cold March weather and shortages of fruit and vegetables in supermarkets for the worse than expected data.
The mixed statistical messages will make it even harder for the Bank of England’s Monetary Policy Committee to make its decision on interest rates in coming months.
However, a quarter-point rise to 4.5% next month followed by a further hike to 4.75% in June is seen by the financial markets as highly likely. Today’s jump in the flash PMI index was driven by the dominant services sector, Its index of activity jumped from 52.9 to 54.9, a year high.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “For now the key takeaway is that the economy as a whole is not only showing encouraging resilience but has gained growth momentum heading into the second quarter. The latest PMI reading is broadly indicative of GDP rising at a robust quarterly rate of 0.4%.”
The April data also pointed to the slowest increase in input costs for companies for more than two years as fuel and energy prices ease from the crippling highs seen a year ago in the wake of Russia’s invasion of Ukraine.
However, survey respondents reported that there has been no let-up in wage inflation, particularly in the services sector.
New order growth for services companies hit a 13-month high buoyed by a post-pandemic surge in spending on travel, leisure and entertainment.
Ashley Webb, UK economist at forecaster Capital Economics said:” Overall, April’s flash composite PMI suggests that the recent resilience in activity continued into Q2 and inflationary pressures may be easing more slowly.
“We think the Bank will need to raise rates further and keep them high for all of this year to reduce inflation all the way to the 2% target.”
Today’s gloomy retail figures contrasted with a strong bounce in consumer confidence in analyst GfK’s latest index. It reported a six-point rise in the index to minus 30 in April.Joe Staton at GfK said: “As food and energy prices continue to rise and inflation eats into wages the cost of living crisis is a painful day-to-day reality for many. But are all consumers buckling under the pressure? On the evidence of April’s confidence figures the answer is no.”
