The Purchasing Managers’ Index, an official survey of business leaders, indicates private sector output expanded in December for the second month in a row. The latest economy-wide composite PMI survey indicates 51.7, up from 50.7 last month – and readings above 50 indicate economic growth.
The manufacturing-focused PMI fell to just 46.4 this month, down from 47.2 in November, as factories grapple with higher electricity costs and persistent skills shortages. While we remain in the global top 10, our manufacturing sector contracted during December for the tenth month in a row.
However, the UK services sector, which drives four-fifths of GDP, posted a December PMI reading of 52.7 – up from 50.9 last month and the highest since June. This suggests at least some growth in GDP when the official figures for November and December are published – with the UK still, in my view, avoiding a recession.
As inflation has declined, interest rates on commercial lending have actually fallen – especially for mortgages and business loans. Lenders are not believing official warnings that the Monetary Policy Committee will not cut interest rates until the end of next year – another sign of the Bank of England’s reckless communications strategy.
The widely held view that the bank will start cutting interest rates sooner helps explain why demand has begun to recover over the past two months, with inflation falling – especially spending on technology, financial services, travel and entertainment.
This year ends with the Bank of England’s base lending rate at a 15-year high and the economy flat. But there are signs of recovery. We are on track for GDP growth of around 0.2% over 2023 as a whole – slow growth already, but which could have been much worse.
However, the reality is that the UK’s economic performance through 2024, and its impact on the timing and outcome of the next general election, is highly dependent on the wider global outlook.
During the two decades leading up to the 2020 lockdown, the global economy expanded on average by 3.8% per year. Global GDP grew just 3.5% in 2022, and is set to slow to 3% this year, according to the International Monetary Fund, before falling to 2.9% in 2024 — well below the historical average.