UK businesses grow for first time in three months, but high rates weigh
A general view of the financial district of London is seen in London, Britain, Oct 19, 2016. REUTERS/Hannah McKay/File photo
LONDON – British companies reported a marginal return to growth in November after three months of contraction but the downturn in orders continued in the face of higher interest rates and weak demand, a survey showed on Thursday.
A day after finance minister Jeremy Hunt announced measures to boost the country’s weak economic growth, the S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI) – spanning services and manufacturing firms – showed a preliminary reading of 50.1 in November.
That was up from 48.7 in October, and above the 50 threshold for growth for the time since July. Economists polled by Reuters had forecast an unchanged reading of 48.7.
“Relief at the pause in interest rate hikes and a clear slowdown in headline measures of inflation are helping to support business activity, although the latest survey data merely suggests broadly flat UK GDP in the final quarter of 2023,” Tim Moore, economics director at S&P Global Market Intelligence said.
READ: Unexpected lift to November GDP eases UK recession risk
Total new orders declined for the fifth month in a row, which S&P Global said reflected a persistently weak economy.
The PMI chimed with other measures of Britain’s economy that indicate stagnating growth.
Britain’s economy has suffered from the highest inflation rate among big, rich countries and gross domestic product failed to grow in the third quarter. But the pace of price growth slowed more than expected to 4.6% in October.
The Bank of England has kept interest rates on hold at its last two meetings after 14 increases in row. But it has warned that inflation could be more persistent than expected, citing upside risks.
READ: Bank of England keep rates at 15-year high, rules out quick cuts
Governor Andrew Bailey this week suggested interest rates could remain higher for longer than priced by investors.
While the PMI for the services sector was in positive territory at 50.5, the manufacturing sector came in at 46.7, a six-month high but still signaling a rapid decline in output.
A separate survey from the Confederation of British Industry published on Wednesday showed the biggest fall in factory orders since January 2021.
S&P’s survey respondents reported a slight uptick in already substantial input cost inflation, and noted “strong” wage growth which pushed up the average prices they charged.
Overall, while firms were more upbeat about their prospects for the year ahead, forward-looking indicators showed recession risks were likely to remain elevated next year.
Euro zone PMI released earlier on Thursday showed the downturn in the single currency area eased slightly in November, but suggested the bloc’s economy was likely to contract this quarter as consumers cut spending.
