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UK Recovery Regains Momentum In October

ukpmi aug03 22oct21 lt

The UK private sector growth accelerated unexpectedly in October as the easing of pandemic related restriction boosted business and consumer spending amid cost inflation reaching a record high on shortages of staff and materials, a private survey revealed Friday.

The composite output index rose to 56.8, a three-month high, from 54.9 in the previous month, flash survey results from IHS Markit and the Chartered Institute of Procurement & Supply showed.

This was the highest since July and remained well above the neutral 50.0 mark. The score was expected to fall to 54.0.

The survey showed that service providers led the recovery and manufacturers signaled another slowdown in production growth due to severe shortages of staff and materials.

The services Purchasing Managers' Index came in at 58.0, in line with expectations, versus 55.4 in September. The manufacturing PMI climbed to 57.7 from 57.1 in the previous month, while the reading was forecast to fall to 55.8.

Service sector activity outpaced manufacturing production by the widest margin since February 2009.

New business volumes increased at a strong pace in October and the rate of expansion was the fastest for three months.

Employment numbers continued to rise sharply in response to improving customer demand and strong confidence towards the business outlook.

Stronger wage pressures and the worsening global supply chain crisis contributed to the fastest rate of input price inflation at UK private sector companies since this index began in January 1998.

Output charges at private sector firms increased in response to escalating input costs, with the latest rise the steepest since the index began more than two decades ago.

The record readings of the Purchasing Managers' survey's price gauges will inevitably pour further fuel on inflation worries and add to the case for higher interest rates, Chris Williamson, chief business economist at IHS Markit, said.

However, the economic growth signals from the PMI remain less convincing from a policy standpoint, Williamson added.

Overall, the data paint a picture of a fragile recovery, Bethany Beckett, an economist at Capital Economics, said.

"And cocktail of rising COVID-19 cases and prolonged shortages suggest the risks to our forecast for GDP to return to its February 2020 peak in early 2022 are to the downside," Beckett added. But despite this, the signs of accelerating price pressures in the PMIs make a rate hike in the next few months look increasingly likely.

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