The UK’s private sector economy grew faster than expected in the last month, and inflation slowed to its lowest level in three years. This gives rise to hopes of interest rate reductions over the summer.
The S&P Global and Chartered Institute of Procurement and Supply composite final purchasing managers’ (PMI) index, a measure of the private sector’s activity, fell to 53 from 54.1 in May.
The figure, however, was higher than what City analysts expected. It has also been revised upwards from the initial reading of 52.8, indicating that the private economy grew faster than initially thought.
The UK economy has grown by 0.6% in the first quarter of this year. This is the highest rate in over two years. Recent data indicates that the expansion will continue into the second quarter.
The business confidence reached its high point in almost a decade. Consumer confidence also rose to its highest since October 2021. Inflation declined to 2.3% in April.
Joe Hayes said, “The PMI survey in May showed a reasonable rate of growth in the UK services sector.” In conjunction with our earlier manufacturing survey, these PMIs suggest GDP growth of about 0.3 percent so far in the 2nd quarter.
The UK economy is gaining momentum thanks to the services sector. The services PMI dropped to 52.9 from an 11-month high in April of 55. However, it was still higher than the manufacturing PMI of 51.2.
The services sector was cited by consumers as being driven by successful marketing campaigns, and a greater confidence in the trajectory for the UK economy. Services companies, however, said that ongoing trade issues with European Union countries contributed to the lowest rate of new exports so far this year.
In May, businesses hired more employees in response to a rise in demand. The rate of growth in employment across the private sector reached its highest level in four months. Manufacturing jobs growth was negative.
The PMI revealed that services inflation has cooled to the lowest level for more than three-years, indicating that prices are continuing to decline. The PMI showed that the level of inflation in the private sector has fallen to its lowest since February 2021.
Bank of England stressed that the rate of services inflation needs to cool down before they can reduce interest rates. They are currently at a 16-year peak of 5,25 percent. According to the Office for National Statistics (ONS), services inflation fell to 5.9 percent in April, from 6 percent, which was well above Bank of England forecasts.
The financial markets believe that the central banks will not lower borrowing costs before September or November. Since March 2020, the central bank has not relaxed its monetary policy.
Rob Wood, Pantheon Macroeconomics’ chief UK economist, said that a slowing in services inflation could keep the MPC (Bank of England Monetary Policy Committee) on track to reduce rates as expected.
Input price increases in the service sector, which is a measure of operating costs for businesses, have slowed to their lowest level since February 2021.
Post Disclaimer
The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.
This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.
The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.