The economy’s strong performance so far in 2024 looks set to continue thanks to the continued recovery of the manufacturing sector, a closely watched survey suggests.
S&P’s ‘flash’ purchasing managers’s index (PMI) came in at 52.7, up from 52.3 last month and slightly higher than the 52.6 expected by economists.
The survey, which measures economic activity in the private sector, is closely watched for signals about the performance of the economy. Anything above 50 indicates that the economy is growing.
Expansions have now been recorded in each of the past nine months, with the index having averaged 53.0 in 2024 so far.
The improvement compared to last month was led by the manufacturing sector, which climbed to a two-year high of 51.8. This was up from 50.9 last month. Output in manufacturing increased due to stronger order book volumes, the survey noted.
The services sector also saw a slight pick up in activity, rising to 52.4 from last month’s figure of 52.1. However, activity in the sector remained relatively subdued compared to peaks earlier in the year.
Source: S&P
Manufacturing and services firms both saw sales accelerate in July. Companies commented on improving market confidence, particularly in the wake of the election.
The upturn encouraged firms across both sectors to increase their staffing numbers at the quickest pace for just over a year.
Having fallen to a six-month low in June, business confidence rebounded sharply in July, coming in only slightly below February’s two-year high. Political stability, the prospect of interest rate cuts, and an improving picture on the demand side were all cited by firms.
“The flash PMI survey data for July signal an encouraging start to the second half of the year, with output, order books and employment all growing at faster rates amid rebounding business confidence, while price pressures moderated,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said.
There was a mixed picture on input cost inflation, with manufacturers suffering from a marked increase due to higher transport prices. Cost increases for services firms, meanwhile, eased to a 41-month low, ensuring the overall level of cost inflation dipped lower.
Easing cost pressures in the services sector also helped to push output inflation to its lowest level since February 2021. Williamson said this “further raised the prospect of a summer rate cut” although there will still some causes for concern given instability in the Red Sea.
The economy has comfortably outperformed expectations this year, notching a 0.7 per cent expansion in the first quarter. This made the UK the fastest growing economy in the G7.
Most economists think this will continue in the second quarter, although growth will then slow somewhat over the remainder of the year.
The combination of lower inflation, strong wage growth and the prospect of interest rate cuts has created a supportive backdrop for consumer spending, the largest contributor to economic growth.