Market News

(Bloomberg) -- Britain’s private sector firms are at their most optimistic in two years after signs that the economy quickly bounced back from recession at the start of 2024.

S&P Global said its composite PMI rose from 52.9 in January to 53.3 this month, the highest level since May last year. It was stronger than the unchanged reading expected by economists with any score above 50 signaling growth.

The brightening economic backdrop pushed optimism on the business outlook for the next 12 months to its highest level since February 2022, before Russia’s invasion of Ukraine sent energy prices soaring.

The survey adds to evidence suggesting that the UK economy turned the corner in early 2024 after slipping into a shallow technical recession in the second half of last year. 

A rapid return to growth is a boost for Prime Minister Rishi Sunak whose economic record has been tainted by last year’s technical recession in the run-up to a general election expected in the second half of 2024. 

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the survey suggests that the UK recession “is already over” and is consistent with a quarterly GDP growth rate of 0.2 to 0.3%.

“ This is by no means a one-off improvement, as faster growth has now been recorded for four straight months after a brief spell of decline late last year,” he said.

Stronger activity is being aided by recovering real household incomes and easier financial conditions as markets brace for the Bank of England to pivot to interest-rate cuts. However, the pickup in economic momentum may force rate-setters to delay a move to looser policy.

S&P said new work for private sector firms rose at the quickest rate in nine months with the services sector driving the strength in the overall PMI. Manufacturing continued to languish in contraction territory.

Services businesses cited a turnaround in business and consumer spending for their recent strength with lower borrowing costs and hopes of a quick return to growth lifting confidence in the UK’s largest sector.

However, average costs for firms rose at the fastest pace in six months, driven by higher wage bills and rising freight costs following disruption to shipping in the Red Sea. Firms reported that rapid wage growth was behind the subdued growth in employment, even as the economy gathers momentum.