UK Businesses Report Post-Budget Bounce

UK Firms Experience Strong Growth Following Recent Budget Changes

Economic Recovery and Inflation Trends

By Andy Bruce

Purchasing Managers' Index Insights

MANCHESTER, England, Jan 23 (Reuters) - British firms have reported the fastest upturn since before Prime Minister Keir Starmer's government took office but also a rise in inflation pressures, according to a survey that prompted investors to cut bets on Bank of England interest rate cuts.

Sector Performance Overview

The preliminary S&P Global UK Composite Purchasing Managers' Index for January hit its highest level since April 2024, jumping to 53.9 from 51.4 in December, suggesting companies were casting off the uncertainty that hung over them before finance minister Rachel Reeves' budget on November 26.

Services Sector Growth

Sterling strengthened against the dollar and British government bond prices fell.

Manufacturing Sector Performance

The reading was above all forecasts in a Reuters poll of economists and followed better-than-expected retail sales numbers for December - which showed the first rise in sales volumes since September - and an improvement in consumer morale.

RATE CUT BETS REDUCED

Other recent data releases have suggested a pickup after Reeves' budget announcement which raised taxes but delayed the introduction of most of them.

However, there have also been more signs of cooling in the labour market and inflation remains high.

Investors last week thought two interest rate cuts from the Bank of England this year looked highly likely but that turned into a 50-50 chance following the PMI. 

"The January PMI data suggest the UK economy has started the year on much firmer footing, with activity picking up strongly across the private sector," said Jake Finney, senior economist at accountants PwC.

"Greater post-budget clarity appears to be helping unlock private sector investment, particularly in services." 

Data company S&P Global said the survey pointed to a quarterly rate of economic growth of around 0.4%.

The services sector led the upswing while manufacturers enjoyed their best month since August 2024 with order books expanding at the fastest pace in almost four years.

However, employment in the services sector contracted at a faster rate in January and output price inflation picked up to a nine-month high, the PMI showed.

"High staffing costs were meanwhile again widely reported as a key cause of higher selling prices, hinting at an intensification of price pressures at a level above the Bank of England target," said S&P Global chief business economist Chris Williamson.

The PMI for the services sector rose to 54.3 from 51.4, the highest reading since April 2024. Optimism hit its highest level since September 2024, the month before Reeves announced sweeping tax increases for employers.

The manufacturing PMI rose a full point to 51.6, its highest reading since August 2024. 

(Reporting by Andy Bruce; Editing by Toby Chopra)