UK Firms Report First Growth in Three Months as Cost Pressures Ease, PMIs Show
By Suban Abdulla
UK Economic Activity Rebounds Amid Easing Cost Pressures
LONDON, July 24 (Reuters) - British firms reported their first growth in three months in July, helped by a brief respite in the Iran war, and were the most upbeat since the conflict began, according to a survey that may provide early encouragement for for new Prime Minister Andy Burnham.
PMI Data Indicates Expansion
The S&P Global UK Composite Purchasing Managers' Index rose to 52.1 from 49.3 in June, according to a provisional estimate, the strongest reading since February and above all forecasts in a Reuters poll that pointed to only a small improvement to 49.7.
Understanding the PMI Readings
Readings above 50.0 indicate growth in activity, while those below that level point to contraction.
Sector Performance: Services and Manufacturing
S&P's services flash PMI rose to 51.8 from 48.8, its strongest since April, while the manufacturing equivalent rose to 52.8 from 52.5.
Factors Behind the Growth
Impact of External Events and Consumer Behavior
Chris Williamson, S&P Global Market Intelligence's chief business economist, said hospitality firms benefited from hot weather, the soccer World Cup and people opting to holiday in Britain as high costs and uncertainty deterred overseas travel.
Cost Pressures and Input Price Inflation
Services and manufacturing businesses reported the combined weakest input price inflation since February, helped by lower fuel and raw material costs as a brief de-escalation in the Gulf conflict reduced oil prices before tensions flared up again.
Effect on Monetary Policy
"Price pressures cooled thanks to the lower oil prices seen during the first half of the month, which could strengthen speculation that the Bank of England will hold off raising interest rates," Williamson said.
The BoE is expected to hold interest rates at 3.75% next week as it assesses the impact of the conflict.
"However, inflationary pressures clearly remain elevated, as the ongoing energy shock and supply squeeze from the war in the Middle East continues to add to existing business cost pressures from earlier government policies," Williamson said.
Labour Market and Business Sentiment
Employment Trends
The survey's employment measure has declined continuously since the first budget of former finance minister Rachel Reeves in 2024 which included a rise in social security contributions paid by employers.
Business Optimism and Risks
Business optimism about the year ahead was the highest since February with companies citing relief from geopolitical tensions and the drop in oil prices in the first part of July.
But the more recent re-escalation in tensions risks derailing the easing in cost pressures, S&P said.
While some firms also pointed to a boost from AI investment spending, others were concerned about the broader UK economic outlook and elevated domestic business uncertainty.
Government Response and Consumer Confidence
Policy Measures by the New Prime Minister
Burnham has offered more support to households and businesses since becoming prime minister on Monday, announcing a cut in business rates for many hospitality firms, a cap on bus fares and the removal of tax on domestic electricity bills.
Consumer Sentiment
The GfK consumer confidence index, published separately on Friday, showed consumers have this month become the most optimistic since January on hopes of a turnaround in the economy.
(Reporting by Suban Abdulla; Editing by William Schomberg and Hugh Lawson)
