By James Tapsfield, Mailonline’s political editor
10:08 15 December 2023, updated 10:09 15 December 2023
Britons got a much-needed boost today, as a major poll showed the economy growing at the fastest rate in six months.
An early reading on the closely watched Purchasing Managers’ Index (PMI) came in at 51.7, with anything above 50 indicating activity is in positive territory.
This was higher than the 50.7 recorded last month, and the improvement was mainly driven by the strong services sector.
These figures will come as a relief to Chancellor Jeremy Hunt after GDP fell by 0.3 per cent in October, raising fears that the UK could slide into recession.
Wages are now rising in real terms as rampant inflation has finally begun to subside.
But evidence of resilience and “steady” rate increases in the poll could bolster the Bank of England’s resolve, after it made clear yesterday that there was no imminent prospect of an interest rate cut to ease pressure on mortgage payers.
Chris Williamson, chief business economist at S&P Global Market Intelligence, which runs the Purchasing Managers’ Index (PMI) survey with CIPS, said: “The UK economy continues to avoid recession, with growth gaining some momentum at the end of the year suggesting that GDP is stagnating. Throughout the year”. The fourth quarter as a whole.
Meanwhile, employment fell for a fourth month, and the decline was only marginal and did not indicate any meaningful rise in unemployment.
However, it is a double-speed economy, with manufacturing contracting sharply while services have regained some balance, the latter growing faster in December thanks in part to financial services activity supported by hopes of lower interest rates in 2024.
This discrepancy is also reflected in inflationary pressures, as falling prices are again evident in the goods-producing sector, while service providers report continuing high inflationary pressures, often linked to wage growth.
“The resulting signal is that inflation will remain stubbornly above 3 percent in the coming months.
“The resilience of the services sector and a firm inflation picture will add to speculation that it is too early for the Bank of England to talk about cutting interest rates, and will add fuel to calls by some policymakers for further rate hikes.
“However, the fear is that the temporary nature of growth in December, and the momentum generated by looser financial conditions, means that fears of further policy tightening could push the economy back down.”
Threadneedle Street kept interest rates unchanged at 5.25 percent yesterday, the highest level in 15 years.
But three of the nine Monetary Policy Committee members voted to raise the level again – despite market speculation that mortgage payers and businesses may get some relief in the coming months.
The bank was striving to control rampant inflation, taking long walks averages in 14 consecutive meetings before pausing this fall.
The increase in the cost of borrowing aims to reduce spending and calm the upward momentum of prices.
However, the Monetary Policy Committee confirmed yesterday that it does not expect the headline CPI to return to the 2 percent target until the end of 2025.