UK business activity has expanded at its fastest pace for eight months as the Omicron wave faded and consumers headed out to spend on travel and leisure.
The latest IHS Markit / Cips flash composite purchasing managers’ index, a monthly survey taking the pulse of the private sector, rose from 54.2 in January to 60.2 in February, showing the highest proportion of businesses since June were reporting rising output.
The survey, published on Monday, showed a similar surge in incoming new orders as confidence in the outlook improved. Businesses were at their most optimistic for the year ahead since May, when the economy was reopening from lockdown.
Chris Williamson, chief business economist at Markit, said the survey pointed to a “resurgent economy” but noted that it also showed cost pressures intensifying to the second-highest rate in the survey’s history, shortening the odds on an “increasingly aggressive” tightening in monetary policy.
The swift rebound, after the Omicron-induced contraction in economic output at the turn of the year, was centered on the services sector, where the business activity index rose to an eight-month high of 60.8. The survey pointed to the fastest rate of job creation since October, driven by the service economy, with demand for business services increasing alongside higher leisure spending.
Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said the rise in activity was driven by holiday and hospitality bookings as consumer confidence returned. He warned, however, that inflation remained “stubbornly high”, adding that rising costs for wages, energy and raw materials had “taken a chunk out of business profits”.
Manufacturers reported healthy growth in activity, with the PMI reading for the sector unchanged at 57.3 and output volumes rising swiftly as it became easier to source raw materials and critical components.
Gabriella Dickens, at the Pantheon Macroeconomics consultancy, said the survey showed the UK economy was “rebounding from Omicron at a fair clip”.
She added that further evidence of price pressures, with a large proportion of companies surveyed by Markit raising prices, would cement the case for the monetary policy committee to raise interest rates next month to 0.75 per cent.