UK economic activity picks up at swiftest rate in a year

British businesses said that economic activity accelerated at the fastest pace in a year this month, while input cost inflation slowed off the back of falling fuel and energy prices, according to a closely watched survey released on Friday.

The S&P/Cips global flash UK composite purchasing managers’ index, a measure of private sector activity, rose to 53.9 in April, up from 52.2 in March, beating analysts’ consensus forecast of 52.5.

The latest reading marked the third successive month that the index remained above 50, which indicates a majority of businesses reporting a month-on-month expansion.

“The key takeaway is that the economy as a whole is not only showing encouraging resilience but has gained growth momentum heading into the second quarter,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

The survey falls in line with other signs of economic recovery. Earlier on Friday, research group GfK reported that its index of consumer confidence, an indicator of how Britons view their personal finances and wider economic prospects, rose by six points to -30 this month.

According to the PMI survey, conducted between April 12 and 19, the pick-up in activity was driven by strong growth in the services sector, where the index rose to a 12-month high of 54.9 this month, up from 52.9 in March, as consumers were more willing to spend on travel, leisure and entertainment.

“Growth is lopsided, however, with surging demand for services contrasting with an ongoing downturn in demand for goods,” noted Williamson.

As more people chose to spend on holidays rather than big ticket purchases, manufacturing activity fell for the second month running and at the fastest pace since January.

Reduced customer demand and falling export sales were among the factors that weighed on performance, according to panel members.

Meanwhile, the survey data showed that business input costs, while still high, grew at their slowest pace in two years, as lower fuel and energy prices as well as improving supply conditions lifted some of the pressures.

However, respondents widely reported that April marked another month of strong wage inflation, which contributed to an increase in the prices they charged.

On Wednesday, separate figures by the Office for National Statistics showed the annual rate of UK inflation was 10.1 per cent in March, down only slightly from 10.4 per cent the previous month and still not far below its October peak of 11.1 per cent.

“April’s flash PMIs suggest the economy is still proving resilient to the dual drags of high inflation and high interest rates going into [the second quarter of 2023]”, said Ashley Webb, UK economist at Capital Economics.

“That, alongside evidence suggesting that domestic inflationary pressures are easing more slowly, gives us even more confidence in our view that the Bank of England will raise interest rates,” he added.

Analysts believe that the central bank is likely to increase interest rates for the 12th consecutive time, beyond the current 4.25 per cent, when the Monetary Policy Committee meets on May 11.

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