- UK composite PMI hits three-month high in October
- Businesses Report Strongest Cost Pressures in Over 25 Years
- GfK reveals lowest consumer confidence since February
- September retail sales fall for record fifth month
- BoE chief economist says November is ‘live’ for rate hike
LONDON, Oct.22 (Reuters) – The UK economy unexpectedly picked up momentum in October, despite soaring costs and mixed consumer signals, according to surveys on Friday that could prompt the Bank of England to raise interest rates for the first time since the pandemic.
The IHS Markit / CIPS Composite Purchasing Managers’ Index preliminary flash index rose the most since May to 56.8, from 54.9 in September. In contrast, a Reuters poll of economists had indicated a further slowdown to 54.0.
The British pound hit its highest level of the day against the dollar after the data, which contrasted with earlier figures showing a record fifth monthly drop in retail sales in September, despite panic buying of gasoline at the end of the month. Read more
However, Chris Williamson, chief economist at IHS Markit, said the unexpected rebound in the PMI index should not be seen as a green light for the BoE to raise rates on November 4.
“The service sector is clearly in a kind of sweet spot,” he said. “The increasing number of COVID-19 cases poses a downward risk to growth in the coming months, potentially deterring some service-oriented activities … and potentially leading to a re-application of health restrictions as the day approaches. ‘winter. “
GfK market researchers said households this month were the darkest since the last lockdown in February, due to higher prices, shortages at stores and gas stations and a sharp increase in the number. of coronavirus cases. Read more
Britain reported more than 52,000 new cases of COVID-19 on Thursday alone, the highest since a wave of the Delta variant in July and more than anywhere else in Europe. Read more
INTENSIFICATION OF SERVICES
IHS Markit said the rise in the PMI was due to UK service companies, with consumers and businesses spending more due to the cancellation of pandemic restrictions. Travel agencies in particular have benefited from a relaxation of COVID-19 testing rules.
In contrast, retailers – who are not covered by the UK PMI – have seen sales drop steadily from a record high in April as supply chain difficulties deepen and spending options widen. with the reopening of pubs, restaurants and hotels.
Service sector activity has outpaced manufacturing output by the largest margin since 2009, as factories again faced shortages in supplies and personnel and experienced virtually no growth.
The services sector PMI hit 58.0, its highest for three months, while the production component of the manufacturing PMI hit its lowest since February at 50.6.
Higher wages and worsening supply shortages have led to the fastest increase in average costs since the launch of the Combined Composite Index in January 1998. 25 years ago.
With inflation expected to more than double its 2% target soon, the BoE is expected to increase borrowing costs as soon as it tries to ensure that rising inflation expectations do not feed into decisions. UK business pricing.
The Bank of England’s new chief economist Huw Pill said in an interview released Thursday evening that the issue of rising interest rates was “live” for the November central bank meeting, and that he wouldn’t be surprised to see inflation exceed 5%. early next year. Read more
The Confederation of British Industry said on Thursday that manufacturers were raising prices the most since 1980 in the face of some of the biggest cost increases and labor shortages since the 1970s. Read More
September retail data showed the biggest price increase since December 2011, and GfK said a record proportion of the public expected inflation to accelerate over the next 12 months. Read more
But many economists believe the BoE would still do better to wait until the UK economy has returned to pre-pandemic size before raising rates, especially as Finance Minister Rishi Sunak is set to impose rules. more stringent budgets next week.
“The risk is that by tightening monetary policy too quickly, some of the temporary economic damage from the pandemic becomes permanent,” said Thomas Pugh, economist at RSM UK.
Editing by Hugh Lawson
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