The UK economy continues to dodge recession, according to the
flash PMI data, with growth picking up some momentum at the end of
the year to suggest that GDP stagnated over the fourth quarter as a
whole.
The economy’s resilience, combined with a sticky inflation
picture in the December PMI data, will add to speculation that it’s
too early for the Bank of England to be talking about cutting
interest rates, and will add fuel to some policymakers’ calls for
further rate hikes.
However, the fear is that the tentative nature of growth in
December, and in particular the impetus the economy has received
from looser financial conditions, means that fears of further
policy tightening could tip the economy back into decline.
Economy picks up further momentum
The headline economic growth indicator from the flash PMI
surveys, the seasonally adjusted S&P Global / CIPS UK Composite
Output Index, rose from 50.7 in November to a six-month high of
51.7 in December. The rise signals increased output for a second
month running after three months of decline.
At its current level, the PMI is broadly indicative of GDP
growing at a quarterly rate of 0.1%, according to historical
comparisons, though is consistent with GDP having largely stalled
over the fourth quarter as a whole.
Jobs cut for fourth month running
While employment meanwhile fell for a fourth month in December,
the decline was only marginal and not indicative of any material
rise in unemployment. The survey nevertheless indicates that the
labour market has weakened in recent months, in terms of the
overall hiring trend, to the softest since the pandemic lockdowns
of early 2021.
Dual-speed economy
The data underscore, however, a worrying dual-speed to the
economy. Manufacturing output contracted sharply in December, down
for the seventeenth time in the past 18 months, the rate of decline
having picked up speed again. The data highlight how UK factories
are undergoing one of their toughest spells since the global
financial crisis in terms of the depth and length of the current
downturn, resulting in further steep job losses in the factory
sector.
Service sector activity meanwhile regained some poise, growing
faster in December to see a second month of growth after mild
declines in the three months to October. Growth nevertheless
remains far weaker than seen earlier in the year, when
consumer-facing services had been buoyed by a spring-summer revival
in travel, leisure and tourism. The service sector growth in
December was also far from broad-based, being led by tech spending
and resurgent financial services activity, the latter having
revived amid looser financial conditions linked to hopes of lower
interest rates in 2024.
It’s also worth noting that service sector employment fell,
albeit marginally, for the third time in the past four months, with
any job gains largely limited to the IT sector.
Stubborn inflation
This sectoral divergence was also reflected in inflation
pressures. Falling prices were again evident in the goods producing
sector while service providers report persistent elevated
inflationary pressures, often linked to wage growth.
The resulting signal is one of inflation slowing from the 4.6%
rate seen in October but remaining stubbornly above 3% in the
coming months.
Access the press release here.
Chris Williamson, Chief Business Economist, S&P
Global Market Intelligence
Tel: +44 207 260 2329
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Purchasing Managers’ Index™ (PMI®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
