Data released by S&P Global/CIPS showed that activity in the UK private sector unexpectedly expanded in February, for the first time since July 2022. Survey respondents noted an increase in consumer demand and an improvement in business confidence in February due to a decrease in economic uncertainty, a reduction in the supply deficit and a decrease in inflation.
The UK Composite Output Index rose in February to 53.0 (8-month high) from 48.5 points in January. A reading above the 50 mark indicates an expansion of activity in the sector. Economists had expected the index to rise only to 49.0. The manufacturing PMI rose to 49.2 points (7-month high) from 47.0 points in January and the services PMI rose to 53.3 points (8-month high) from 48.7 points. Economists had expected the indices to rise to 47.5 points and 49.2 points, respectively.
The total volume of new orders in the private sector increased for the first time in seven months and at the fastest pace since May 2022. A significant increase in new orders in the service sector contrasted with a slight decline in the manufacturing sector. Service providers benefited from a third consecutive increase in new export sales, while manufacturers of goods recorded another decline. Stronger consumer demand contributed to the resumption of growth in the number of outstanding orders and employment in the private sector. The pace of job creation was the highest since October 2022, mainly due to additional hiring in the service sector. Input cost inflation eased for the third month running in February, with manufacturers recording a particularly marked slowdown in price pressures. February data pointed to another steep increase in average prices charged by private sector companies and the rate of inflation was down only slightly since the beginning of 2023. Lower prices charged inflation was led by the manufacturing sector. Finally, reflecting positive trends in production and new orders, the latest data indicated a strong increase in growth expectations for the coming year. The degree of optimism about business activity over the next 12 months was the highest since March 2022. This index has been rising for each of the last four months, signaling a significant recovery in business confidence from the lowest level seen in October last year.