UK economy growing faster than expected: flash PMI

A closely-watched survey revealed that the UK private sector’s economy grew faster than expected, and inflation dropped to its lowest level in three and a half years this month. This “welcoming” picture for Labour is a welcome one, according to the study.

The S&P Global Flash Composite Purchasing Managers’ Index (PMI), which measures the purchasing power of companies, jumped from 52.3 to 52.7 in this month’s report. This is slightly higher than what City analysts expected.

The composite PMI (which measures the activity of the UK’s manufacturing and services sectors) has now been over the 50-point threshold separating growth from contraction for nine consecutive months.

The manufacturing PMI jumped to 51.8, a record high for the past 24 months. The reading for services rose from 52.1 to 52.4.

The survey shows that the UK’s economy is experiencing a sustained period of growth. The Office for National Statistics’ (ONS) official GDP figures showed that in the first quarter of this year, the UK had the fastest growth rate in the G7. It was 0.7 percent.

Chris Williamson is the chief business economist for S&P Global Market Intelligence. He said that the first [PMI] post-election paints a positive picture of the new government. Companies in manufacturing and service have gained confidence in the future. They are reporting an increase in demand, and they’re hiring more staff.

Thomas Pugh is an economist at RSM UK. He said that the PMIs “overall paint a picture” of a growing economy.

After Labour’s convincing victory in the July 4 general elections, the increased activity within the private sector can be attributed to a greater level of political and policy confidence. After Labour’s convincing victory in the general election on July 4, new business orders reached a 15-month-high, while export sales rose to a 16 month-high.

Businesses increased recruitment in response to a stronger demand. Manufacturing and service companies hired staff at the fastest pace for 13 months.

S&P Global reports that the inflation rate in the private sector has slowed to its lowest pace in almost three and a quarter years. This is due to the fact that the price growth of services businesses fell to its lowest level ever since February 2021.

The ONS, the UK’s official rate of inflation, reported that the rate of overall price growth remained at 2 percent for the second month in a row. However, services inflation was still high at 5.7%.

The Bank of England’s monetary policy panel, which meets next on August 1, will have noted that the PMI shows a rapid decline in services prices over the past month.

The financial markets believe there is a chance the Bank of England will reduce rates to 5.25 percent next Thursday. However, the September meeting has been deemed the most likely time for the cycle to begin.

Ashley Webb, UK-based economist at Capital Economics and a consultancy said: “Given lingering concerns about the persistence of service inflation, the decline in the services price balance will give Bank of England some assurance that services inflation will ease in the next months.”

Separately the eurozone PMI fell close to contraction territory, at 50.1, due to the activity of the German private sector which contracted in July. The composite PMI of the largest economy in the common currency zone fell to 48.7, from 50.4.