Inflation reignites in UK as economy powers further away from feared recession
Inflation has reignited in the UK, pushed higher by the economy roaring back and emboldening businesses to pass on higher costs to customers via rising prices, a closely watched survey out today unveils.
S&P Global and the Chartered Institute of Procurement and Supply’s (PMI) for the country’s services sector climbed sharply to 55.9 points last month from 52.9 points in March.
The reading was above analysts’ expectations and a big upgrade from a preliminary reading of 54.9 points.
Britain’s composite PMI – which measures output across the private sector – jumped to 54.9 points, signalling the country’s economy is growing at a fairly decent pace. Its manufacturing sector is shrinking.
S&P Global and CIPS’ surveys have a 50 point threshold that separates growth from contraction. The UK’s services PMI has been above that level for a few months now.
Today’s numbers reinforce the economy’s better than feared performance since the turn of the year.
Just a few months ago, Bank of England officials and those at the Office for Budget Responsibility were projecting the UK to slip into a long recession in 2023. Both organisations have canned their recession forecasts.
“A strong rate of service sector growth meant that the UK economy started the second quarter of 2023 in positive fashion. Overall private sector output expanded at the fastest pace for one year, despite another fall in manufacturing production during April,” Tim Moore, economics director at S&P Global Market Intelligence, said.
Resilient spending among households lured businesses into raising prices to partially protect their finances from higher costs, raising the risk of inflation sticking around.
Price inflation among services firms jumped in April after sliding to a 19-month low in March, likely in response to the cost of raw materials rising again after several months of decline.
“Around 48 per cent of the survey panel reported a rise in input costs, while only three per cent signalled a fall. Moreover, the overall rate of input price inflation accelerated for the first time since last November,” the PMI survey said.
What next for interest rates?
The numbers will not make for pretty reading for the Bank of England, who has raised interest rates eleven times in a row to 4.25 per cent to tame inflation, currently running in the double-digits at 10.1 per cent, more than five times the Bank’s two per cent target. Core inflation is also elevated.
Analysts reckon Governor Andrew Bailey and co will hike rates again next Thursday, probably by 25 basis points, but today’s survey could raise the chances of further hikes in the coming months.
Most central banks are thought to be close to the end of their respective tightening cycles.
European Central Bank officials are tipped to hike borrowing 25 basis points later today.