UK firms had a more positive February than anticipated so far, with firms eyeing growth prospects later in the year as the vaccine roll-out continues.
The IHS Markit/CIPS purchasing managers index (PMI) jumped to 49.8 in February from 41.2 in January, a far swifter improvement than what was originally feared.
The index indicated some stabilisation in activity after a sharp fall in January, the lowest since May last year, which followed the UK’s third lockdown restrictions.
“Although the data hint at a renewed contraction of the economy in the first quarter, business expectations for the year ahead improved to the highest for almost seven years, suggesting the economy is poised for recovery,” IHS Markit’s chief business economist, Chris Williamson, said.
Britain’s economy saw the biggest decline in over 300-years last year, shrinking by 9.9 per cent.
However, the Bank of England predicted growth of 5 per cent this year, in preparation for the return of pre-pandemic production levels early next year.
Chief investment officer at Premier Miton, Neil Birrell, said: “After disappointing January retail sales numbers this morning, the PMIs came out much better than expected. This shows that businesses are more optimistic in their outlook than thought.
“Clearly companies are looking through the current malaise in the economy to a rapid easing of lockdown and activity picking up. It’s good news for the jobs market.”
Chief UK economist at Pantheon Macroeconomics, Samuel Tombs said: “The swift recovery in the composite PMI in February suggests that businesses are continuing to adapt to lockdown conditions and that GDP probably will recover a bit after January’s sharp fall, even though lockdown rules haven’t been relaxed.”
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Hotels, restaurants, transport and travel companies continue to report falls in activity this month but at a slower rate than in January, IHS Markit said.
Financial and business services firms enjoyed modest growth.
Separate figures by GfK that cover UK retailers showed today that although retail sales had slumped, consumer outlook was the strongest now that recovery hopes are in sight.
“As the government has begun sounding out a data-led roadmap to easing national restrictions we saw PMIs print significantly above expectations coming in at 54.9 for manufacturing and 49.7 for services whilst the Composite data printed 49.8,” director of market risk solutions at Silicon Valley Ban, Kieran Cleere, said.
Accounting for around 10 per cent of Britain’s economy, manufacturers have outperformed services in recent months with fewer restrictions to navigate.
“In conjunction with manufacturing’s outperformance, the somewhat buoyant readings may suggest a rosier economic outlook as some of the immediate challenges of Brexit have been overcome and the government emanates soothing tones regarding restrictions,” Cleere added.
However, Brexit red tape may hinder its advantage as firms are met with higher raw material costs and supply chain disruptions since January.
“We continue to look for a solid 5.5 per cent quarter-on-quarter jump in GDP in Q2, though this forecast is sensitive to the rollout plans that the PM will announce on Monday,” Tombs said.
“If this rebound materialises, the MPC will be under little pressure to cut bank rate below zero in August, when such a step will be in its toolkit for the first time.”