London (Parliament Politics Magazine) – UK business activity grew this month after a sharp elevation in new sales to a 15-month high, providing a lift to the new government as it schedules to summarise the state of the public finances next week, according to a survey of private-sector firms.
How Did July PMI Figures Affect Business Confidence?
A decline in inflation across the services sector was also predicted to ease concerns at the Bank of England about persistent price climbs before a meeting of the central bank’s policymakers next week. The S&P Global Flash UK composite purchasing managers’ index (PMI) – which contains manufacturing and services – registered a reading of 52.7 in July, up from 52.3 in June.
The growth was above the expectations of City economists, who had pencilled in a climb to 52.5. The manufacturing PMI increased to 51.8 from 50.9 in June, its highest level for two years, while the service sector was at a two-month high of 52.4, up from 52.1.
S&P stated the flash figures were established on preliminary data. Any score above 50 suggests that activity is growing, while below 50 indicates it is contracting.
What Impact Has the New Government Had on Business?
Chris Williamson, the chief business economist at S&P Global Market Intelligence, stated the figures represented “an auspicious start to the second half of the year”, with output, order books and employment all increasing at faster rates amid rebounding business confidence.
“The first post-election business survey smears a welcoming picture for the new government, with companies working across manufacturing and services, having gained positiveness about the future, reporting a renewed surge in demand and taking on staff in greater numbers,” he stated. “Prices have meanwhile risen at their lowest rate for three and a half years, further raising the prospect of a summer rate cut.”
What Are the Key Trends in Manufacturing and Services?
Services firms conveyed that they had put redundancy projects on ice and were recruiting again after last year’s recession had flashed fears of widespread layoffs. Manufacturers were positive after a rise in orders, though a peak in shipping costs meant firms cut back on acquisitions of components and raw materials.
The balance of companies that pushed up prices versus those that cut costs showed the smallest gain since February 2021. The Bank’s monetary policy committee (MPC) assembles on 1 August but is expected to postpone a first rate cut in more than four years until at least September.
What Does the PMI Data Suggest About Future Rate Cuts?
Williamson expressed the Bank was likely to take “a cautious path to loosening policy” amid indications of inflationary pressures “pivoting away from services towards manufacturing”, where Red Sea shipping uncertainties and higher freight prices were adding to costs again.
“The renewed hiring trend could also add to wage pressures, maintaining some stickiness of inflation in the future months,” he said.