UK Private Sector Expands Further On Manufacturing Resurgence

The UK private sector economy signaled a further expansion in May amid a renewed upturn in manufacturing, though at a slower-than-expected pace, flash survey results from S&P Global showed on Thursday.

The composite output index dropped to 52.8 in May from April’s 1-year high of 54.1. The expected score was 54.0. However, a reading above 50.0 indicates expansion in the private sector.

The overall growth in the British private sector was attributed to a strong rebound in manufacturing production, as the PMI climbed to a 22-month high of 51.3 from 49.1 in the previous month.

Services activity logged further expansion in May on the back of rising business and consumer spending, but the rate of growth moderated to the lowest in six months. The services purchasing managers’ index, or PMI, dropped to a 6-month low of 52.9 in May from 55.0 in April.

The growth in new orders across the private sector has eased to the lowest in this year so far. Services and manufacturing recorded equally moderate uplifts in new orders. New export orders also grew for the second straight month.

Despite sustained output growth, the British economy witnessed a subdued labor market in May, as the employment level rose only at a marginal rate. Some firms continued to signal delays in hiring staff due to candidate shortages and cost considerations.

On the price front, input price inflation slowed to the lowest level in seven months, reflecting softer rises in input costs across both manufacturing and service sectors. As a result, selling price inflation eased to its lowest level since February 2021.

Looking ahead, the outlook for business activity for the upcoming year remained optimistic, despite varying patterns in the two primary industries.

“With companies now reporting the slowest price growth in over three years and headline inflation falling close to target, the PMI data support the view that the Bank of England will start cutting interest rates in August, provided the data continue to move in the right direction over the summer,” Chris Williamson, chief business economist at S&P Global, said.

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