UK private sector activity in January increased at the fastest rate in 16 months, a closely watched survey showed, as a decisive general election result gave business confidence a boost.
The IHS Markit/Cips composite purchasing managers’ index rose to 53.3 from 49.3 in December. It is the first time since August that the survey has risen above the 50 mark, which indicates a majority of managers say activity is growing.
The survey of business leaders, published on Wednesday, was higher than the preliminary take of 52.4 that was released late last month.
The improvement was driven primarily by the UK’s dominant services sector, where businesses reported improved order intake and the strongest rate of business expansion since June 2018. January’s services PMI index came in at 53.9 — its highest level in 16 months — up from 50 in December.
The initial indications of an improvement in business sentiment last month prompted the Bank of England last week to keep interest rates on hold at 0.75 per cent.
Ruth Gregory, senior economist at Capital Economics, said the bounce in private sector confidence provided the “clearest sign yet that the economy has turned a corner”. She said the latest PMI supported a view that the MPC may even increase interest rates in the future — “albeit not until 2021”.
Companies across the sector, which accounts for about 80 per cent of the UK economy, reported increases in consumer spending and business investment, and a return to growth in exports, albeit marginally.
Forward-looking indicators also pointed to an uptick in confidence. Readings for new orders for services companies rose from 51.2 to 54.7, and for future activity from 66.3 to 71.5.
Many respondents said increased certainty after the election was helping growth. But they also noted that the optimistic outlook was contingent on continuing stability, which given the UK was still needed to agree deals with all its major trading partners post-Brexit, was by no means guaranteed.
Tim Moore, a senior economist at IHS Markit, said the latest data pointed to “an improvement on the sluggish conditions seen at the end of last year”. He forecast UK GDP would rise by 0.2 per cent in the first quarter.
Survey respondents said that they had taken on additional staff in January to keep up with growing demand. Set against the lowest unemployment rate for decades managers said in some cases this had led to an increase in input prices as staff demanded higher salaries.
“The flip side of this coin meant that businesses and consumers were also paying more for services as firms felt more comfortable in raising their own prices,” Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said.
Source: Economy - ft.com
