The pound shot up on Tuesday as recession fears eased after a new survey confounded expectations by suggesting that the UK’s private sector has returned to growth this month.
The monthly flash purchasing managers’ index (PMI) showed that the private sector grew for the first time in six months.
The much-followed score hit 53 in February, preliminary data shows, up from 48.5 a month earlier. It is the highest score for eight months.
Any score above 50 is considered to show growth in the sector. Analysts had expected the figure to reach 49.1 according to a consensus estimate supplied by Pantheon Macroeconomics.
The pound shot up by around one US cent following the news and could buy 1.21 dollars.
“Much better than anticipated 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,” said Chris Williamson, chief business economist at S&P Global Market Intelligence, one of the companies that compiles the report.
The data showed that both the service and the manufacturing sectors appear to have returned to growth.
Businesses said that demand from their customers was improving. Business confidence also got better during the month amid lower economic uncertainty, easing supply shortages and falling inflation.
Companies also saw their costs rise at the slowest rate since April 2021, however businesses said they still need to pass on the costs of higher wages, food costs and energy bills to customers.
The average price charged by private sector companies increased steeply, the survey found.
“While many companies continue to report tough operating conditions, especially in the manufacturing sector, the broader business mood has been buoyed by signs of inflation peaking, supply chains improving and recession risks easing,” Mr Williamson said.
“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, and potentially more aggressively, which may dampen future growth expectations and suggests that the possibility of recession later in the year should not be ruled out.”
The service sector scored 53.3, up from 48.7, while the manufacturing sector hit 51.6, compared with 47 a month earlier.
Total volumes of new work rose for the first time in seven months, while service companies hired many new staff.
However, companies still said that they were struggling to fill vacancies, despite salaries being higher.
Meanwhile, a separate survey for the Confederation of British Industry found that manufacturing output volumes fell in the three months to February at their fastest rate since September 2020.
Anna Leach, CBI deputy chief economist, said: “Conditions in manufacturing remain challenging, with output disappointing and order books having thinned out since late last year.
“However, if growth is going to return to the sector on a sustainable basis, then manufacturers need more than the boost some will receive from lower energy prices over the winter season.”