Market News
UK Recovery From Recession Gains Momentum as PMI Beats Forecast - BLOOMBERG
BY , Bloomberg News
Workers deliver drinks to a pub in the City of London. Photographer: Chris J. Ratcliffe/Bloomberg , Bloomberg
(Bloomberg) -- The UK economy’s recovery from recession unexpectedly gathered pace at the start of the second quarter as private-sector firms reported the strongest growth in almost a year.
S&P Global’s purchasing managers’ index rose to a stronger-than-expected 54 in April, an 11-month high and a jump from 52.8 the previous month. The pound rose.
The figure was much stronger than the 52.6 expected by economists, with any score above 50 signaling growth. The services sector drove the pickup as manufacturing returned to contraction.
Firms responded by boosting hiring by the most for nine months. They also reported the strongest cost pressures in 11 months, particularly from staff wages after a near 10% in the minimum wage took effect in April.
The figures may heighten concerns among Bank of England hawks that a stronger economy and rapid wage growth mean that the battle to curb inflation pressures is not over, even with the headline rate close to falling to the 2% target. The economy slipped into a shallow recession in the second half of last year but early indicators point to a return to growth in the first quarter.
The pound extended gains after the release, rising as much as 0.3% to $1.2389. UK government bonds edged lower as money markets reduced wagers on the scope for rate cuts, though traders still expect two quarter-point reductions by year-end, with small odds of a third.
Markets have pushed back bets on the start of the BOE’s hiking cycle in recent weeks after fears the UK will suffer a resurgence in price pressures similar to those seen in the US. Investors are fully pricing in the first reduction in borrowing costs for the August meeting, followed by one more cut by the end of the year.
“While the improving economic recovery picture is welcome news, the upward pressure on inflation will add to concerns that a sustainable path to below target inflation has not yet been achieved,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. “The upturn in costs alongside solid demand suggests firms may seek to raise prices in the coming months.”
However, the prices charged by firms rose at the slowest pace in over three years with companies citing competitive pressures for stifling their ability to pass on higher costs.
The survey indicates the economy is growing at a 0.4% quarterly rate, up from 0.3% in the first quarter, Williamson said.
Services firms reported stronger spending by businesses and consumers. Still, S&P said that some companies warned that cost of living pressures and subdued confidence was still a brake on growth.
--With assistance from Aline Oyamada and James Hirai.
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