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UK Private Sector Contracts Marginally In February

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The UK private sector output contracted only marginally in February reflecting a near-stabilization in services activity amid continuing recovery in manufacturing, a closely watched survey showed on Friday.

The IHS Markit/Chartered Institute of Procurement & Supply flash composite output index climbed more-than-expected to 49.8 in February from 41.2 in January.

The score was forecast to rise to 42.2. The score was close to the 50.0 no-change threshold.

Service sector activity remained severely impacted by the Covid-19 pandemic in February. Nonetheless, the services Purchasing Managers' Index advanced to 49.7 from 39.5 in the previous month. The expected score was 41.0.

The reading signaled the softest rate of decline since the current phase of contraction began in November 2020.

Meanwhile, the manufacturing PMI came in at 54.9, up from 54.1 in the prior month and above the forecast of 53.2.

The improvement in manufacturing was driven by a return to new order growth. Meanwhile, slightly slower rates of output and employment growth weighed on the headline PMI in February.

Manufacturing companies often cited severe supply chain disruptions as a factor holding back production volumes.

"… although the data hint at a renewed contraction of the economy in the first quarter, business expectations for the year ahead improved to the highest for almost seven years, suggesting the economy is poised for recovery," Chris Williamson, chief business economist at IHS Markit, said.

The survey suggested that the economy did not deteriorate further after the probable fall in GDP in January triggered by the current COVID-19 lockdown, Paul Dales, an economist at Capital Economics, said.

It's only when the COVID-19 shackles are released in the coming months that the economy will experience a meaningful rebound in activity, said Dales.

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