British business activity has returned to growth, bolstered by the fastest manufacturing growth in two years and the strongest inflow of new orders since April 2023.
It come as prices charged inflation slowed to its weakest since February 2021 in July, driven by a softer increase in output charges at services companies, according to data from S&P Global.
However, the rate of inflation remains above average on a longer-term view.
July’s S&P global flash composite purchasing managers’ index rose to 52.7 from June’s six-month low of 52.3, coming in a tad higher than forecast.
Growth: British business activity picked up this month, new data shows
The result was also stronger than the same survey for the euro zone, which fell to 50.1 from 50.9, below all economists’ forecasts.
Growth has been recorded in each of the past nine months, with the index having averaged 53.0 this year.
While growth this year has exceeded most forecasters’ expectations, Britain’s economy has performed relatively poorly since the pandemic. The economy grew just 0.1 per cent last year and the International Monetary Fund forecasts growth of 0.7 per cent this year.
Among the Group of Seven rich economies, only Germany has done worse, as it took an even bigger hit than Britain from the surge in European natural gas prices which followed Russia’s invasion of Ukraine in 2022.
On Wednesday, Chris Williamson, chief business economist at S&P Global Market Intelligence, said: ‘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.
‘The first post-election business survey paints a welcoming picture for the new government, with companies operating across manufacturing and services having gained optimism about the future, reporting a renewed surge in demand and taking on staff in greater numbers.
‘Prices have meanwhile risen at their lowest rate for three and a half years, further raising the prospect of a summer rate cut.’
He added: ‘However, policymakers will likely take a cautious approach to loosening policy amid signs of inflationary pressures pivoting away from services towards manufacturing, where Red Sea shipping delays and higher freight prices are adding to costs again.’
Reason to cheer? The latest flash survey said new business activity reached its highest level for 15 months in July
Ashley Webb, an economist at Capital Economics, said: ‘Some of the recent rebound in activity this year may have been due to catch-up growth following the weakness of activity last year.’
The latest flash survey said new business activity reached its highest level for 15 months in July.
Services activity growth accelerated slightly, while manufacturing output climbed to the ‘strongest degree’ since February 2022.
The upturn encouraged firms to boost their staffing numbers at the quickest pace for 13 months, while future activity expectations came close to matching February’s two-year peak.
While input cost inflation at services firms eased further amid softening wage pressures, manufacturing firms faced the strongest rise in costs in one-and-a-half years as global freight challenges linked to the Red Sea crisis drove transport bills higher.
Sales growth across both manufacturing and services accelerated in July, leading to the strongest increase in total new business since April 2023.
On confidence among businesses, the survey said: ‘After slipping to a six-month low in June, business confidence across the UK rebounded in July, and was only slightly below the two-year high seen in February.’
The data may cheer Keir Starmer’s new government – which is targeting faster growth to allow higher public spending – and the Bank of England too, as inflation pressures fell to their lowest in more than three years.
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