Scrapping of Plan B curbs turbocharges UK services economy

The British economy appears to be weathering the cost of living storm as the drag on businesses and households from pandemic curbs peters out.

The scrapping of Plan B restrictions prompted Brits to pour back to high streets, pubs, bars and restaurants, lifting output in the services economy to an eight month high of 60.8 this month, according to IHS Markit’s latest purchasing managers’ index (PMI). 

The sharp turnaround in the fortunes of services businesses marks what is likely to be the end of the virus’ influence on the UK economy.

Almost all Covid-19 restrictions will be ditched this Thursday.

The likelihood of the Bank of England hiking rates for the third time in as many meetings has strengthened after the robust PMI reading, experts said.

“The odds of an increasingly aggressive policy tightening have shortened, with a third back-to-back rate rise looking increasingly inevitable in March,” Chirs Williamson, chief business economist at IHS Markit, said.

The composite PMI, which measures output generated by the UK’s entire private sector, also hit an eight month high of 60.2, smashing the City’s expectations.

A reading above 50 indicates most businesses said output is growing.

The better than expected PMI reading “chime[s] with other timely indicators” that underline the economy is roaring back to full strength, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.

Tombs revised up his first quarter GDP growth forecasts to 0.6 per cent on the news.