Growth set to continue as confidence in the economy builds
A closely watched survey suggests that the UK will continue growing at a robust pace in the second half of the year as confidence in the economy continues to build.
S&P’s ‘flash’ purchasing managers’s index (PMI) accelerated to 53.4 in August, up from 52.8 last month and ahead of the 52.9 expected by economists.
PMIs, which measure business activity in the private sector, are closely watched for clues about the economy’s performance. The UK has now been above the 50 no-change mark for ten consecutive months.
“August is witnessing a welcome combination of stronger economic growth, improved job creation and lower inflation,” Chris Williamson, chief business economist at S&P Global Market Intelligence said.
“Both manufacturing and service sectors are reporting solid output growth and increased job gains as business confidence remains elevated by historical standards.”
The survey pointed to a “robust upturn” in new orders from domestic markets, with clients more willing to spend due to softer inflationary pressures and lower borrowing costs.
On the back of stronger demand, the rate of employment growth accelerated to its fastest pace since last June. Survey respondents also noted that increasing confidence about the domestic outlook had spurred efforts to boost business capacity.
Firms were optimistic about the future, with many pointing to reduced political uncertainty and the prospect of further interest rate cuts.
“The August PMIs point to an economy that is continuing to recover after last year’s recession with output and employment rising and confidence remaining high,” Thomas Pugh, economist at RSM UK said.
The survey suggests that the UK will continue to grow at a decent clip in the remainder of the year, albeit at a slightly slower pace than during the first half.
Figures out last week showed that the economy grew 0.6 per cent in the second quarter, following a 0.7 per cent expansion in the first quarter. Analysts at Capital Economics said the PMI figures were consistent with a quarterly growth rate of around 0.4 per cent in the third quarter.
Ashley Webb, UK economist at the consultancy, said the PMI provided further evidence that some of the recent economic strength was due to “catch-up growth following the mild recession” last year.
The survey also had some positive signals for policymakers at the Bank of England, with input price inflation easing to its lowest in just over three-and-a-half years.
This was largely due to easing cost pressures in the services sector, although there were still reports of elevated wage inflation. Services inflation has been a major concern for rate-setters.
Despite easing cost pressures, average prices charged remained relatively high in August, although the rise was among the slowest seen since the start of 2021.
“The latest survey data therefore help lower the bar for further interest-rate cuts,” Williamson said.