UK business activity expands in ‘encouraging start to second half of year’

UK business activity expanded this month after a sharp rise in new sales to a 15-month high, giving a lift to the new government as it prepares to outline the state of the public finances next week, according to a survey of private-sector firms.

A fall in inflation across the services sector was also expected to ease concerns at the Bank of England about persistent price rises ahead of a meeting of the central bank’s policymakers next week.

The S&P Global flash UK composite purchasing managers’ index (PMI) – which includes manufacturing and services – reported a reading of 52.7 in July, up from 52.3 in June.

The increase was above the expectations of City economists, who had pencilled in a rise to 52.5. The manufacturing PMI rose to 51.8 from 50.9 in June, its highest level for two years, while the service sector was at a two-month high of 52.4, up from 52.1.

S&P said the flash figures were based on preliminary data. Any score above 50 indicates that activity is growing, while below 50 means it is contracting.

Chris Williamson, the chief business economist at S&P Global Market Intelligence, said the figures represented “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.

“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,” he said.

“Prices have meanwhile risen at their lowest rate for three and a half years, further raising the prospect of a summer rate cut.”

Services firms reported that they had put redundancy plans on ice and were recruiting again after last year’s recession had sparked fears of widespread layoffs.

Manufacturers were buoyant after a rise in orders, though a rise in shipping costs meant firms cut back on purchases of components and raw materials.

The balance of firms that pushed up prices versus those that cut prices showed the smallest increase since February 2021.

The Bank’s monetary policy committee (MPC) meets on 1 August, but is expected to delay a first rate cut in more than four years until at least September.

Williamson said the Bank was likely to 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 were adding to costs again.

“The renewed hiring trend could also add to pay pressures, sustaining some stickiness of inflation in the coming months,” he added.