UK ‘found its feet’ in November as economy returned to expansion but recession fears remain
Economic activity returned to expansion in November as an improvement in the services sector helped lift the UK economy, but experts warned recession remained a real possibility.
S&P Global’s Purchasing Managers’ Index (PMI) for the UK economy came in at 50.1, the highest level in four months and marginally above the 50 reading which indicates flat growth.
The PMI assesses the health of an economy’s services and manufacturing sector. Economists had expected a reading of 48.7.
The improvement came as the UK’s all-important services sector climbed to a five month high of 50.5. The manufacturing sector remained in contraction, but rose to a six month high of 46.7.
The pause in interest rate hikes, which have been left on hold for two consecutive meetings, offered some relief to firms. “Survey respondents commented on a tentative revival in business services activity and resilient corporate spending,” the report said.
Tim Moore, Economics Director at S&P Global Market Intelligence said: “The UK economy found its feet again in November as the service sector arrested a three-month sequence of decline and manufacturers began to report less severe cutbacks to production schedules.”
“Relief at the pause in interest rate hikes and a clear slowdown in headline measures of inflation are helping to support business activity, although the latest survey data merely suggests broadly flat UK GDP in the final quarter of 2023,” he continued.
However, new order intakes decreased for the fifth month in a row, suggesting that demand remains subdued.
Higher borrowing costs were cited as a reason why demand remained subdued, particularly in the construction sector. Manufacturers also noted that customer destocking continued to act as a headwind to demand.
Given the subdued demand outlook, Moore said “recession risks will likely remain elevated into the New Year”.
The survey also pointed to “renewed signs of sticky inflation” as both input costs and prices charged increased at faster rates than in October.
“Despite headline inflation heading in the right direction, the rates of input cost and output charge inflation both increased in November, indicating that price pressures may not be on a one-way path downwards and there could still be fluctuations to come,” John Glen, chief economist said.
Ashley Webb, UK economist at Capital Economics, said the figures will “add to the Bank’s unease about the stickiness of inflation”.
Economic activity in the eurozone meanwhile remained subdued with the PMI index coming in at 47.1, up from 46.5 last month.
“The Eurozone economy is stuck in the mud,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said.
“Our nowcast model indicates the potential for a second consecutive quarter of shrinking GDP. This would align with the commonly accepted criterion for a technical recession,” he said.