Recession ‘already over’ as economic activity picks up again but inflationary pressures grow
The UK is already powering away from the shallow recession recorded in the second half of last year as business activity picked up again in February, a closely watched survey suggested.
Private sector output rose to its highest level in nine months in February, surprising economists who had expected a slight fall in activity.
S&P’s purchasing managers’ index (PMI) recorded 53.3 in February, rising from the 52.9 recorded last month. Economists had expected a reading of 52.7.
The survey measures business activity in the private sector. Anything above 50 indicates business activity is expanding.
The figures suggested that the UK’s all-important service sector continued to its strong run, remaining at 54.3 while the the manufacturing sector saw a slight improvement to 47.1, up from 47 previously.
Firms surveyed in the service sector cited a turnaround in business and consumer spending, despite ongoing cost-of-living pressures, while some also commented on a boost from less restrictive financial conditions.
Although manufacturing activity remained mired in downturn, the rate of decline eased to its lowest level since November. Firms cited a lesser degree of customer destocking, which helped to stabilise demand.
Across the economy as a whole, new business volumes increased for the third month running largely due to a “solid rise” in new work for service providers. Firms in the service sector also saw a “marked upturn” in new work from abroad.
“UK economic growth has accelerated in February, with the early PMI survey data pointing to the largest rise in business activity for nine months,” Chris Williamson, chief business economist at S&P Global Market Intelligence said.
“The survey data point to the economy growing at a quarterly rate of 0.2-3 per cent in the first quarter of 2024, allaying fears that last year’s downturn will have spilled over into 2024 and suggesting that the UK’s ‘recession’ is already over,” he continued.
Alex Kerr, assistant economist at Capital Economics, agreed, suggesting that “the mildest of mild recessions at the end of 2023 may soon be over”.
However, Williamson also pointed out that a large part of the increase came from financial services firms, boosted by hopes of falling interest rates.
For consumer facing firms the outlook was less rosy, with the cost of living crisis continuing to impact demand.
The figures also showed that costs for businesses increased at the fastest pace for six months with wage pressures pushing up expenses for firms in the service sector.
Rising freight costs for manufacturers due to disruption in the Red Sea also pushed up prices, although this was only modest.
“With growth accelerating and prices on the rise again, February’s data mean policymakers are increasingly likely to err on the side of caution when considering the appropriateness of cutting interest rates,” Williamson said.
Last week GDP figures for the fourth quarter of last year showed that the UK slipped into a shallow recession in the second half of last year.
Falling inflation and hopes of interest rate cuts have spurred hopes that the UK will record a better year in 2024.