Jeremy Hunt received a double boost yesterday as figures showed the economy was returning to growth and experts revised GDP forecasts upwards after the Autumn Statement.
The UK’s Purchasing Managers’ Index (PMI) revealed that the UK’s private sector is largely back in expansion mode after three months of weakness, outperforming the struggling eurozone.
A closely watched survey found that businesses were buoyed by the end of interest rate hikes and falling inflation.
Separate data also showed a strong rebound in consumer confidence, which should cheer retailers ahead of Christmas.
Simon French, chief economist at Panmure Gordon Investment Bank, said Britain “has been at the top of European economies for most of this year”, with the widest gap with the continent since the start of 2022. Ta.
Boost: Goldman said it was revising its forecasts after Chancellor of the Exchequer Jeremy Hunt cut National Insurance contributions and extended tax relief for small businesses investing in plant and machinery.
The pound rose nearly 1 cent against the dollar to just under $1.26, its highest since early September. And against the euro, it soared above 1.15 euros.
However, a slightly brighter outlook prompted traders to back off bets on when the Bank of England would cut interest rates.
Traders expect the central bank to cut interest rates by about 60 basis points in 2024.
This means two quarterly point cuts have been priced in, including the first in September. The probability of winning 3rd place is about 40%.
That’s a sharp turnaround from last week, when traders were pricing in a nearly 1 percentage point rate cut as early as August after an unexpected drop in retail sales.
The “preliminary” PMI figure (an index that divides growth and contraction into 50 points) for November was 50.1.
This was up from 48.7 in October and exceeded economists’ expectations that it would 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 continues to decline, albeit at a slower pace than before.
“The UK economy bounced back on its feet in November,” said Tim Moore, economics director at S&P Global, which compiled the survey.
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The easing of the moratorium on interest rate hikes and a clear slowdown in key indicators of inflation are supporting business activity. ”
The figures will help ease recession fears, but still suggest the UK is headed for a final quarter of zero growth.
However, the UK is now shown to be outperforming the eurozone, with the PMI reading improving from 46.5 to 47.1, suggesting the eurozone will contract by a further quarter, leading to a recession if confirmed. It means.
Meanwhile, a separate survey conducted this month by market research firm GfK showed a strong rebound in consumer confidence, especially for large purchases such as sofas and refrigerators.
Joe Staton, Director of Customer Strategy at GfK, said: “Despite severe cost of living pressures, many people still want to loosen their wallet strings a bit, and we all associate this with the Christmas season. You get to enjoy that feel-good factor.”
And economists from Wall Street giants JP Morgan and Goldman Sachs have raised their outlook for the UK economy.
JPMorgan forecast GDP growth of 0.2% to 0.4%, while Goldman Sachs raised its forecast to 0.6% to 0.7%.
Goldman said it was revising its forecasts after Mr Hunt cut National Insurance contributions and extended tax breaks for small businesses investing in plant and machinery.
It added: “The rather robust growth outlook…supports the view that the Bank of England is likely to start cutting interest rates in the third quarter of 2024 (Q3) rather than in the second quarter.”
The broader market has also dialed back its expectations for the timing of the first rate cut, with August now seen as more likely than June.