Economy's Rebound in February was Stronger than Expected According to S&P Global PMI

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The UK's economic rebound in February was stronger than previously reported, according to the final PMI survey from S&P Global.

The preliminary Services PMI released on February 21 gave a reading of 53.3, which was revised higher to 53.5 in the final release, issued today.

"February data indicated that the UK service sector gained considerable momentum," said S&P Global.

The Composite PMI was revised higher to 53.1 from 53.

"Survey respondents often cited signs of a turnaround in client confidence, helped by reduced political uncertainty and hopes that inflationary pressures would continue to ease in the months ahead," said S&P Global.

The latest survey also highlighted that overall input cost inflation fell to its lowest since June 2021.

Furthermore, rising export sales contributed to the rebound in total new orders in February and S&P Global says higher levels of new work from abroad have been recorded for three months running, with the pace of expansion accelerating throughout this period.

Service sector companies often noted stronger demand from clients in the US and western Europe.

But, Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics says "it’s too soon to conclude that a recession has been avoided, despite the rise in the composite PMI above 50 for the first time since July."

His calculations suggest the average level of the composite PMI in Q1 so far, 50.8, is consistent with a mere 0.1% quarter-on-quarter increase in GDP in Q1.

"What's more, a simple regression against quarter-on-quarter GDP growth between 1998 and 2019 shows that the PMI's prediction has been wide of the mark on average by 0.3 percentage points. This error margin partly stems from the fact that the composite PMI covers sectors of the economy accounting for just 51% of GDP," says Tombs.

Pantheon Macroeconomics thinks that UK GDP likely fell by about 0.2% quarter-on-quarter in Q1.

"All told, then, we continue to doubt that the MPC will raise Bank Rate to 4.75% by the summer, from 4.0%, as markets currently expect. We see the odds as being relatively evenly balanced between the Committee keeping Bank Rate at 4.0% and nudging it up to 4.25% in the first half of this year," says Tombs.