The influential S&P Global/CIPS flash UK purchasing managers’ index (PMI) reported a reading of 52.5 in January, up from 52.1 in December
Businesses saw growth reach a seven-month high in January, despite factories being hit by the Red Sea crisis.
The S&P Global/CIPS flash UK purchasing managers’ index (PMI) reported a reading of 52.5 in January, up from 52.1 in December. The service sector, which includes pubs, restaurants, financial firms, transport, cinemas and theatres, has seen an increase in spending and activity.
Firms reported stronger demand among their customers, with some attributing this to lower borrowing costs. However, the positive performance of service firms was somewhat offset by manufacturers who are experiencing a slump in activity.
Production across the sector fell for the 11th month in a row in January, according to the preliminary PMI data. Factories were affected by longer wait times for container freight due to the Red Sea crisis.
The “flash” survey, which gathers responses from about 1,300 service providers and manufacturers, will publish final monthly data early in February. Yemen’s Iran-backed Houthi rebels have been attacking container ships since late November, causing a major disruption in the crucial trade route used for transporting energy, commodities and consumer goods.
This has led to some companies rerouting their vessels or even suspending shipments entirely due to safety concerns, resulting in longer shipping times. The latest PMI data shows that vendor wait times have significantly increased, with delays mainly linked to these extended international shipping times, affecting manufacturers.
This has also resulted in increased costs for businesses across the sector, at the fastest rate since March, according to the survey. Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “UK business activity growth accelerated for a third straight month in January, according to early PMI survey data, marking a promising start to the year.”
He added: “However, the surprising strength of growth in January, which has exceeded forecasts, may deter the Bank of England from cutting interest rates as soon as many are expecting, especially as supply disruptions in the Red Sea are reigniting inflation in the manufacturing sector. Supply delays have spiked higher as shipping is re-routed around the Cape of Good Hope, the longer journey times lifting factory costs at a time of still-elevated price pressures in the service sector.”
He mentioned that inflation is likely to stay “stubbornly higher”, between 3% and 4%, soon. After a surprise jump in the rate of consumer prices index (CPI) inflation to 4% in December, from 3.9% in November.
The Bank of England will decide on interest rates next week. Experts think they’ll keep rates higher because of ongoing inflation worries. James Smith, an economist at ING, said the new data “serves as a reminder that the Bank of England won’t be rushed into rate cuts this year”.
He added that the Bank’s new forecasts next week will show better inflation than in November. he said: “But the committee will want to see more progress on services inflation and wage growth before acting, while a large tax cut package in March would probably be another reason to hold rates higher for a little longer.”
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