Business output returns to growth after December’s election

The UK private sector returned to growth for the first time in five months in January as business confidence was boosted by Boris Johnson’s election win, new data has revealed.

The flash IHS Markit/CIPS composite purchasing managers index (PMI), a preliminary report before the final data is released next week, jumped to a reading of 52.4 for December. Any reading above 50 reflects growth.

An uplift in business confidence after the Conservatives won a majority in the general election helped to drive growth across the economy, as new work increased at the fastest rate since September 2018.

It represents a significant rebound from a reading of 49.3 in December and was ahead of analysts’ forecasts of 50.7.

The preliminary figures showed significant upturns in the services and manufacturing sectors over the month.

The flash services activity index reported a 16-month high of 52.9, as businesses said greater political certainty had had a positive impact on consumer spending.

Meanwhile, the manufacturing output index rose sharply to 49.5, from 45.6 in December, as its contraction significantly slowed.

Employment numbers also increased for the second consecutive month, with marginal growth across both the services and manufacturing sectors.

Chris Williamson, chief business economist at IHS Markit, said: “The survey data indicate an encouraging start to 2020 for the UK economy.

“Intensifying political and economic uncertainty ahead of the general election has started to ease, encouraging more spending and helping push business expectations of future growth to its highest since mid-2015.

“The uplift in sentiment about the outlook hints at even better growth to come, but confidence needs to continue to rise to ensure this solid start to the year has legs.”

The figures could also weaken the prospect of an imminent rate cut by the Bank of England, following comments from policymakers that they were considering actions to stimulate growth.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Markets now see just a 43% chance that the Monetary Policy Committee will cut Bank Rate on January 30, down from 50% before the PMI was released and a peak of 75% last week. That probability still looks too high to us.”

Duncan Brock, group director at the Chartered Institute for Procurement and Supply, said: “2020 has started on a positive note with this sudden change in momentum.

“However, that’s where the story will end until this uncorked trickle of new orders and activity turns into a flood for businesses hit by hesitancy in the last three years.

“Business activity will need to be buoyed up by the prospect of strong negotiations around the UK’s exit from the EU to return them to strength in the years to come.”