By William Schomberg
LONDON (Reuters) – Companies in Britain’s huge services sector saw another pick-up in growth this month, suggesting that the economy has just enough momentum to avoid a recession for now at least, a survey showed on Friday.
The S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI) – spanning services and manufacturing firms – rose to 51.7, according to December’s preliminary reading, the highest in six months and up from November’s final reading of 50.7.
Economists polled by Reuters had forecast a smaller increase to 50.9.
“The UK economy continues to dodge recession with growth picking up some momentum at the end of the year to suggest that GDP stagnated over the fourth quarter,” Chris Williamson, S&P Global Market Intelligence’s Chief Business Economist said.
“This is, however, a dual-speed economy, with manufacturing contracting sharply while services regained some poise.”
Financial services activity was helped by hopes of lower interest rates in 2024, Williamson said.
The Bank of England kept borrowing costs at a 15-year high on Thursday and once again stressed they would need to remain elevated to smother the risks from still-high inflation. But financial markets are pricing rate cuts next year.
The PMI showed that in the services sector, business activity climbed to 52.7 from 50.9, also its highest reading since June and only the second time since July that the index was above the 50.0 growth threshold.
But manufacturing’s reading fell to 46.4, reversing some of November’s improvement and representing the 17th consecutive month of contraction.
Solid growth in new business for services companies offset a fall in manufacturing orders to give the first overall order growth in six months.
Staffing levels fell for a fourth month in a row.
The survey offered a little bit of relief to the BoE by showing a small slowdown in services price inflation, which the central bank watches closely.
The gauge of output price growth in the sector eased to 57.7 from 58.2, but it remained high by historical standards.
The cautiously positive tone – including the strongest expectations for output in three months in the composite index – chimed with some other positive signs for Britain’s largely moribund economy.
Consumers turned a bit more confident in December, according to a survey published earlier on Friday, and there have been some signs that a housing market slowdown has bottomed out.
However, the big picture remains one of barely perceptible economic growth. Data published on Wednesday showed gross domestic product shrank by 0.3% in October, leaving output flat since January.
(Reporting by William Schomberg; Editing by Susan Fenton)
