UK economy delivers record growth in 2021 amid Covid rebound
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Relaxed restrictions have seen a boom in many sectors such as travel, leisure and entertainment, with the UK seeing a growing economic rebound as a result. Private sector output is now expanding at its fastest pace in eight months according to the latest snapshot from data provider IHS Markit. According to the group’s much followed Purchasing Managers’ Index (PMI) business activity has now been increasing for 12 months in a row, with a big uptick this month. The index, which is drawn from survey data of around 650 manufacturers and 650 service providers, rose from 54.2 in January to 60.2 in February.
Activity in the services industry has led to the increase with a rapid rebound for areas such as hospitality and business services while manufacturing remained unchanged from the previous month.
Staff recruitment has accelerated with businesses experiencing increased workloads and better outlooks for growth.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, commented: “Recovery in private sector business went up a few notches in February with the fastest uptick in new order levels for eight months and buoyant optimism the highest since May 2021.
“Steering the course to increased business activity for the twelfth month in a row was largely attributed to the number of holidays and hospitality bookings as national lockdowns became a thing of the past and consumer confidence returned.
“No sign of improvements in price inflation however which remained stubbornly high.
“With February’s rate of cost inflation the second-highest on record, wage rises, energy costs and continuing raw materials shortages took a sizeable chunk out of business profits.”
Inflation has continued to prove a major problem for businesses with increasing signs of companies passing on price rises to consumers, as confirmed by a number of major firms in recent weeks including Unilever and Nestle.
According to today’s figures costs for businesses were found to be rising at their second-highest rate since the index began in 1998.
Chris Williamson, Chief Business Economist at IHS Markit, warned that while the figures indicated a “resurgent economy” the growing cost pressures made the chance of a third interest rate hike from the Bank of England in March “look increasingly inevitable.”
Thomas Pugh, an economist at consultancy RSM UK, commented: “The Monetary Policy Committee (MPC) has made it clear that it is more focused on the threat from inflation than the risks to economic growth.
“The strong February PMI reading makes it even more likely that the committee will raise interest rates from 0.5 percent to 0.75 percent at its next meeting in March; and raises the risk of a 0.5 percent jump, although a 0.25 percent rise is more likely.”
Meanwhile in the Eurozone growth picked up with PMI data also out today reaching a five-month high, although it remains behind the UK at 55.8.
An individual release for Germany put PMI for the country at 56.2, slightly above the Eurozone average but behind the UK.
While services staged a recovery on the continent manufacturing has continued to struggle with Manufacturing PMI falling to a two month low.
Mr Williamson said: “Although easing, supply constraints remain widespread and continue to cause rising backlogs of work.
“As such, demand has again outstripped supply, handing pricing power to producers and service providers.”
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“At the same time, soaring energy costs and rising wages have added to inflationary pressures, resulting in the largest rise in selling prices yet recorded in a quarter of a century of survey data history.”
Pressure is expected to build on the European Central Bank (ECB) to take a tougher line on controlling inflation after the Bank has so far steered clear of following the Bank of England in raising interest rates.
The ECB has previously cited fears over harm the Eurozone’s recovery if rates are hiked suddenly as well as expressing a belief inflation will prove temporary.
In a note Bert Coljin, Senior Eurozone Economist at ING Thing, predicted: “High producer prices are being priced through to the consumer, which is set to translate to higher consumer goods inflation.
“This may ease towards the end of the year, but for the moment we see further gains to come.”
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