Jeremy Hunt received a double boost yesterday as figures showed the economy returning to growth and experts upgraded their GDP forecasts following the autumn statement.
The UK Purchasing Managers’ Index (PMI) revealed that Britain’s private sector was on the cusp of returning to expansion mode after three months of decline – and ahead of the still-struggling Eurozone.
The closely watched survey found that companies rebounded with the end of interest rate increases and lower inflation.
Separate data indicated a significant rise in consumer confidence, which should cheer retailers ahead of Christmas.
Simon French, chief economist at investment bank Panmure Gordon, said the UK “has been at the top of the European pack for most of the year” – opening its biggest gap with the continent since early 2022.
The pound rose nearly a cent against the dollar to just under $1.26, its highest level since early September. It rose above €1.15 against the euro.
However, the slightly brighter outlook has traders backing off their bets on when the Bank of England will cut interest rates.
Traders are betting that the central bank will cut interest rates by about 60 basis points in 2024.
This means cuts of a quarter of a percentage point have been priced in, with the first cut in September. The one-third probability is about 40 percent.
That’s a sharp turnaround from last week, when traders priced in nearly a full percentage point of interest rate cuts starting in August, following an unexpected drop in retail sales numbers.
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The “fast” PMI figure for November – on an index where the 50 mark separates growth from contraction – gave a reading of 50.1.
This represents an increase of 48.7 points from October and ahead of economists’ expectations for it to remain unchanged this month.
The figures reflect a return to growth in the services sector, which covers everything from pubs and restaurants to lawyers and accountants, while the manufacturing sector continued to decline, albeit more modestly than before.
“The UK economy found its feet again in November,” said Tim Moore, director of economics at S&P Global, which compiled the survey.
The easing of the pause in interest rate hikes and a clear slowdown in key inflation measures is helping to support business activity.
These figures will help allay fears of a recession although they still indicate that the UK is heading into the final quarter with zero growth.
But it showed the UK outperforming the eurozone, with the PMI reading improving from 46.5 to 47.1, indicating another quarter of contraction for the bloc, which, if confirmed, would mean recession.
Meanwhile, a separate survey by market research firm GfK, conducted this month, showed a significant rise in consumer confidence, especially for major purchases such as sofas and refrigerators.
“Despite acute cost-of-living pressures, many still want to loosen their wallets a little so they can enjoy the feel-good factor we all associate with the festive season,” said Joe Staton, director of client strategy at GfK.
Economists at Wall Street giants JP Morgan and Goldman Sachs raised their forecasts for the British economy.
JP Morgan expected GDP to grow by 0.4 percent, up from 0.2 percent, while Goldman Sachs raised its forecast from 0.6 percent to 0.7 percent.
Goldman said it was reviewing its forecasts after Hunt cut National Insurance rates and expanded tax breaks available to small businesses that invest in plant and machinery.
“The slightly more solid growth outlook… reinforces our view that the Bank of England is more likely to start cutting interest rates in the third quarter of 2024 (Q3) rather than in the second quarter,” he added.
The broader market has also backed off bets on when the first interest rate cut will arrive, with August now seen as more likely than June.
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