The UK’s recession appears to already be over, economists said, after the release of an influential business activity survey.
The S&P Global Flash United Kingdom ‘Flash’ PMI hit a nine-month high in February at 53.3, comfortably ahead of the 50 mark that represents stagnation. That is slightly ahead of forecasts and up from a 52.9 reading in January.
The dominant services sector continued to grow with a 54.3 reading. Manufacturing remained in decline for the 12th straight month at 47.3.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said the figures, combined with January’s growth, mean the UK economy likely grew in the first quarter of the year. That would take the country out of recession, after back-to-back quarters of declining GDP to end 2023.
Williamson said: “UK economic growth has accelerated in February, with the early PMI survey data pointing to the largest rise in business activity for nine months. This is by no means a one-off improvement, as faster growth has now been recorded for four straight months after a brief spell of decline late last year.
“The survey data point to the economy growing at a quarterly rate of 0.2-3% in the first quarter of 2024, allaying fears that last year's downturn will have spilled over into 2024 and suggesting that the UK’s ‘recession’ is already over.”
Michael Brown, market analyst at Pepperstone, said: “This morning's UK PMI figures further serve to dispel some of the 'doom and gloom' that has surrounded the UK economic narrative of late, particularly after Q4 GDP data this time last week confirmed the onset of technical recession at the tail end of 2023.
“Per the PMIs, it is likely that said recession is already over, with the composite output gauge once more printing comfortably north of the 50 handle, and above market expectations at 53.3.”
At the same time, the survey’s data on prices suggested that any inflation resurgence from the conflict in the Red Sea has been minimal. The manufacturing input prices balance decelerated from 52.5 to 52.3.
Alex Kerr, UK economist at Capital Economics, said that might mean inflation hits 0% soon, but in the longer term, price pressures remain strong in the service sector.
Kerr said: “This implies core goods CPI inflation will slow from 2.7% in January to around 0.0% later this year. However, the services output prices balance rose from 57.2 to 58.5, which survey respondents attributed to continued higher labour costs. This is consistent with services CPI inflation easing only gradually from 6.5% in January to just above 5.0% in six months’ time.
“This will add to the Bank of England’s unease about lingering domestic price pressures. At the margin this may mean the Bank won’t rush to cut interest rates. But we still think overall CPI inflation will fall below 2.0% in April and that the Bank will be in a position to start cutting rates this summer.”
