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Is the UK going to swerve a recession?
Better than anticipated purchasing managers’ index (PMI) data for February indicate encouraging resilience of the economy in the face of headwinds which include rising interest rates, the ongoing cost of living crisis, labour shortages and strikes.
While many companies continue to report tough operating conditions, especially in the manufacturing sector, the broader business mood has been lifted by signs of inflation peaking, supply chains improving, and recession risks easing. The stress created by last autumn's mini budget is also continuing to work its way out of the financial system.
However, while the data suggest that near-term recession odds have fallen considerably, elevated inflation pressures clearly remain a concern, especially in the service sector. As such, the resilience of the economy and the stickiness of the survey's inflation gauges add to the likelihood of the Bank of England tightening policy further, which may dampen future growth expectations and suggests that the possibility of recession later in the year should not be ruled out.
UK business activity grew back into life in February, according to the flash PMI survey data compiled by S&P Global and sponsored by The Chartered Institute of Procurement & Supply (CIPS), displaying improved growth after six months of continual decline.
The latest reading is consistent with GDP growing at a quarterly rate of 0.3% after a 0.3% rate of contraction had been indicated for January. That leaves the signal for the first two months of the year flat on average, though momentum is clearly improving to suggest that the economy could return to growth in the first quarter as a whole after having stalled in the fourth quarter of last year and having contracted in the third quarter.