UK has a greater chance of avoiding a recession according to the latest health check of the economy.
The preliminary reading of the S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI) jumped to 53.0 in February from 48.5 in January. It was above 50, the threshold for growth for the first time since July.
The dominant services sector drove the improved reading as global demand recovered and the UK financial system stabilised.
Factory activity continued to contract but at a much reduced pace, with the manufacturing PMI increasing to 49.2 from 47.
ONS data shows the value of consumer spending increased this winter.*
Commenting on the latest news, Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown said:
‘’The risks of a seventies style recession is receding as quickly as the hairlines of those born in the decade. The latest health snapshot, in the form of the closely watched Purchasing Managers Index, shows business activity surged in February, bucking gloomy forecasts. The services sector in particular is powering ahead, with confidence snapping back as companies navigated past peak inflation and customers prove resilient amid the pain of high prices. Relief that the market turmoil prompted by the disastrous mini-budget had been calmed is shining through in this data. Financial stability brought about by a reversal of ‘trussenomics’ doused hot fears that interest rates might have to hit 6% and with that consumer and business optimism has been climbing, prompting fresh orders. Although fewer goods rolled off factory production lines in February, the pace of contraction was slower, another indication that better times could be round the corner for manufacturing. Companies have shaken off the Autumn funk that descended and with confidence returning, there are high hopes that a UK recession will be side-stepped.
Consumers have also proven a lot more resilient that expected, keeping the money flowing into the retail sector. The latest ONS data out today showed that the cost-of-living crisis appears to have only been a glancing blow as it has not significantly dented spending patterns. We may be getting less bang for our bucks due to higher prices but the value of consumer spending increased, and people concentrated splurges around big events like Black Friday to get the best deals, with sale day spending increasing this winter.
However, with fresh industrial strife on the cards, further interest rate rises expected, and the housing market turning from a quiver to a shiver, a recession can’t be ruled out and at the very least we’ll be heading for an early noughties period of stagnation. ‘’ *The ONS has released data on our spending patterns during the 22/23 winter How discretionary spending has been affected in recent winters, UK – Office for National Statistics (ons.gov.uk)
