Britain still on track to dodge a recession this year but inflation returns
Britain is still on track to avoid a recession in 2023 driven by consumer spending holding up amid a tough cost of living crisis, a closely watched survey out today shows.
S&P Global and the Chartered Institute of Procurement and Supply’s composite purchasing managers’ index (PMI) for May hit 53.9 points.
While the number was below market expectations, it was still far above the 50 point threshold that separates growth and contraction. May’s number slipped from a 12-month high of 54.9 in April to a two-month low.
A surge in spending at pubs, restaurants and bars as Brits headed out to celebrate King Charles’s coronation helped lift output growth in May, the PMI said. Part of that expansion will have been offset by the extra bank holiday.
Strong activity among the Square Mile’s brokers, banks and insurers also fuelled growth.
“The UK economy enjoyed another month of strong growth in May, with the expansion continuing to be driven by surging post-pandemic demand in the service sector, notably from consumers and for financial services, with hospitality activities buoyed further by the Coronation,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.
He added that the PMI is “consistent with GDP rising 0.4 per cent in the second quarter after a 0.1 per cent rise in the first quarter,” meaning the UK is still more likely than not to dodge a recession, defined as two consecutive quarters of contraction, in 2023.
The figures add to the swelling body of evidence that illustrate the economy is outperforming experts’ expectations at the turn of the year. The OBR, Bank of England and IMF all projected the country to slip into a tough recession.
The IMF said today it no longer expects the UK to tip into recession this year.
Although UK growth is back on the up, strong demand from households is reigniting inflation.
Prices charged “across the private sector economy increased at an historically steep pace in May, although the rate of inflation was the second-lowest since August 2021,” the PMI said.
That resurgence suggests the Bank of England’s twelve successive interest rate hikes to 15 year high of 4.5 per cent have yet to meaningfully dent the rate of price increases, raising the chances of Governor Andrew Bailey and co lifting borrowing costs again no 22 June.
New numbers out tomorrow from the Office for National Statistics are tipped to show inflation dropped to 8.2 per cent in April from 10.1 per cent, which would take the rate to its lowest level in over a year.
Most of the UK’s output expansion is being driven by the services sector. The manufacturing PMI slipped to 46.9 points.