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Business activity expanded in UK

Christian Fernsby |
January data from the IHS Markit CIPS Flash UK Composite PMI highlighted a decisive change of direction for the private sector economy at the start of 2020.

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Topics: BUSINESS    UK   

Business activity expanded for the first time in five months, driven by the sharpest increase in new work since September 2018.

The seasonally adjusted IHS Markit CIPS Flash UK Composite Output Index rose to 52.4 in January, from 49.3 in December.

As a result, the headline index registered above the crucial 50.0 no-change mark for the first time since August 2019.

The latest reading was the highest for almost one-and-a-half years and signalled a moderate expansion of business activity across the UK private sector economy.

There were widespread reports that reduced political uncertainty following the general election had a positive impact on business and consumer spending decisions at the start of the year.

Service providers experienced solid increases in business activity and incoming new work in January.

Meanwhile, the performance of the manufacturing sector stabilised in comparison to the end of 2019, but still trailed behind the service economy amid ongoing weakness in export markets.

Employment numbers increased for the second month running in January, with marginal growth seen in both the manufacturing and service sectors.

Additional staff hiring was supported by a sustained rebound in output growth projections for the next 12 months, with business optimism reaching its highest level since June 2015.

Survey respondents often commented on hopes that an end to domestic political indecision will have a favourable impact on business investment and help to sustain a more favourable economic landscape.

Input price inflation meanwhile accelerated in January and was the highest for four months.

Greater salary payments were reported as the main source of pressure on operating expenses, although manufacturers also noted rising commodity prices and higher costs for imported materials.

Efforts to alleviate the squeeze on margins resulted in a solid increase in average prices charged by private sector firms at the start of 2020.

Some businesses also suggested that improving demand conditions had allowed greater scope to pass on higher operating costs.

Measured overall, the latest rise in average prices charged was the fastest since May 2019.

At 49.8 in January, the seasonally adjusted IHS Markit/CIPS Flash UK Manufacturing Purchasing Managers’ Index (PMI) picked up from 47.5 in December and was the highest since since April 2019.

The latest PMI reading was only fractionally below the neutral 50.0 threshold and signalled a broad stabilisation of business conditions across the manufacturing sector at the start of 2020.

Higher levels of new work and a slight rise in employment were positive contributions to the index, while a sharp and accelerated fall in stocks of purchases was the main negative influence.

Manufacturing production meanwhile fell at a much slower pace than in December, with the latest reduction only marginal and the smallest since the current phase of decline began in June 2019.

Lower output was linked to a lack of pressure on operating capacity and, in some cases, the ability to fulfil orders from inventories accumulated to deal with Brexit uncertainty.

At 49.8 in January, the seasonally adjusted IHS Markit/CIPS Flash UK Manufacturing Purchasing Managers’ Index (PMI) – a composite single-figure indicator of manufacturing performance – picked up from 47.5 in December and was the highest since since April 2019.

The latest PMI reading was only fractionally below the neutral 50.0 threshold and signalled a broad stabilisation of business conditions across the manufacturing sector at the start of 2020.

Higher levels of new work and a slight rise in employment were positive contributions to the index, while a sharp and accelerated fall in stocks of purchases was the main negative influence.

Manufacturing production meanwhile fell at a much slower pace than in December, with the latest reduction only marginal and the smallest since the current phase of decline began in June 2019.

Lower output was linked to a lack of pressure on operating capacity and, in some cases, the ability to fulfil orders from inventories accumulated to deal with Brexit uncertainty.