UK economy shows early signs of recovery after ‘Awful April’
The UK economy looks set to recover from a torrid month for businesses in which higher energy costs and employment tax rises kicked into effect, fresh data has suggested.
S&P Global’s latest flash purchasing managers’ index (PMI) showed that the UK’s services sector has seen moderate growth in output in May while contractions in manufacturing activity are easing.
But suggestions that UK businesses have escaped the worst of extra cost pressures added in what has been dubbed ‘Awful April’ may be too hastily made.
Firms told S&P Global researchers that the unpredictability of President Trump’s aggressive trade policies are weighing down on confidence while low levels of business activity were due to clients’ hesitancy over orders for services.
The composite PMI figured registered was 49.4, just below S&P Global’s 50-figure mark showing output has neither increased or decreased.
The lack of clarity over global economic policies meant new work across the private sector fell at the fastest pace in two and a half years.
Private sector employment also continued to fall, with redundancies, non-replacement of voluntary leavers and hiring freezes contributing to a fall in headcounts across the UK economy.
Chris Williamson, chief business economist at S&P Global, said that businesses reported a “milder May” after having survived “awful April”.
“Business confidence has rebounded from April’s recent low, which had seen confidence collapse to a degree not seen since the Truss Budget of 2022, and price pressures have moderated after spiking higher,” Williamson said.
“Sunny weather also provided a welcome boost to business activity in some parts of the economy.”
Williamson also said flash data for May, taken from a survey of more than 1,200 firms, suggested lowering cost pressures “keeps the door open for further interest rate cuts in the coming months”.
UK economy battles with low growth
A separate survey by the Confederation of British Industry (CBI) showed that manufacturing output volumes fell in the three months to May while inflation expectations remained above a long-term average.
The survey of 281 manufacturers suggested that confidence across the sector “remains poor” while more has to be done on securing trade deals to “shift the dial”, according to the CBI’s lead economist Ben Jones.
Firms will now be hoping that Chancellor Reeves follows through on her commitment to grow the UK economy at a “faster” pace by introducing business-friendly policies.
Companies will be looking ahead to the government’s announcement on an industrial strategy as well as its spending review in mid-June.
Should Reeves not commit to spending cuts, economists believe firms may face having to pay more taxes given half of Reeves’ headroom may have already been wiped out by higher borrowing costs and her reaffirmed promise not to raise any of the major taxes on ‘working people’.
Matt Swannell, chief economic adviser to the EY ITEM Club, said he believes GDP growth will “comfortably remain in positive territory” in the second quarter of the year after the first three months saw a large boost of 0.7 per cent.