Gradual UK progress ticks up in January however value pressures surge, PMI reveals

By Andy Bruce

(Reuters) -Tepid progress throughout British companies picked up barely at first of 2025 with employment and optimism contracting once more whereas value pressures rose, based on a survey that underscored the problem dealing with the Financial institution of England.

The preliminary “flash” studying of the UK S&P Composite Buying Managers’ Index (PMI) – revealed on Friday – inched as much as 50.9, a three-month excessive, from 50.4 in December.

The survey chimed with different indicators of lacklustre progress and a weakening jobs market since finance minister Rachel Reeves raised payroll tax rises for companies in her first funds on Oct. 30.

Economists polled by Reuters had anticipated an additional decline in January to 50.0, the PMI’s dividing line between progress and contraction.

British authorities bond costs dropped as buyers homed in on the stronger-than-expected studying and the survey’s gauges of value pressures. Sterling rose barely in opposition to the greenback.

“Right now’ information launch will not alleviate the Financial institution of England’ considerations in regards to the weak point of exercise,” mentioned Elias Hilmer, economist from consultancy Capital Economics.

“We nonetheless suppose the Financial institution will reduce rates of interest from 4.75% now to 4.50% in February, however the strengthening in value pressures counsel it’s going to reduce charges solely steadily thereafter.”

S&P International mentioned many companies linked the autumn in hiring to the hike of their social safety contributions introduced by Reeves.

The tempo of job losses reported by the PMI over the previous two months was the very best for the reason that international monetary disaster in 2009, excluding the COVID pandemic interval.

Optimism amongst firms fell to the bottom stage since late 2022, shortly after former prime minister Liz Truss’s “mini-budget” which shocked monetary markets.

“Inflation pressures have…reignited, pointing to a stagflationary setting which poses a rising coverage quandary for the BoE,” mentioned Chris Williamson, chief enterprise economist at S&P International Market Intelligence.

The PMI’s gauges of prices confronted by companies and promoting costs surged to their highest ranges since mid-2023, one thing that’s more likely to function within the BoE’s discussions earlier than its Feb. 6 rate of interest resolution.

Traders are pricing in between two and three quarter-point charge cuts by the BoE in 2025 as inflation pressures stay sticky, with the primary trying seemingly in February.

Official information has proven Britain’s economic system stagnated within the three months to September and the BoE has estimated that it flatlined once more within the final three months of 2024.    

S&P International mentioned its UK companies PMI additionally rose to a three-month excessive of 51.2, up from December’s 51.1. However manufacturing shrank for a fourth month working and manufacturing unit employers reduce jobs on the quickest tempo since February 2024. Nevertheless, the sector’s PMI rose to 48.2 from 47.0.