British business top of pack in Europe… but recovery is set to delay interest rate cuts

Jeremy Hunt was given a double boost yesterday as figures showed the economy was returning to growth and experts upgraded their GDP forecasts after his Autumn Statement.

The UK purchasing managers’ index (PMI) revealed Britain’s private sector was just about back in expansion mode after three months of decline – and ahead of the eurozone which continues to struggle.

Businesses were buoyed by the end of interest rate increases and falling inflation, the closely-watched survey found.

And separate data pointed to a big pick-up in consumer confidence, which should cheer retailers ahead of Christmas.

Simon French, chief economist at Panmure Gordon investment bank, said the UK ‘has been top of the European pack for most of the year’ – and had opened up its biggest gap with the continent since early 2022.

Boost: Goldman said it was revising its forecast after Chancellor Jeremy Hunt cut national insurance rates and extended tax reliefs to small businesses investing in plant and machinery

The pound climbed nearly a cent versus the dollar to just under $1.26, its highest level since early September. And it spiked above €1.15 versus the euro.

However, the slightly brighter outlook prompted traders to push back bets on when the Bank of England will cut interest rates.

Traders are betting the central bank will reduce rates by around 60 basis points in 2024.

That means two quarter-point reductions are priced in, with the first cut in September. The chance of a third is about 40 per cent.

That’s a sharp turnaround from last week, when traders priced almost one full percentage point of rate cuts starting as soon as August, following an unexpected drop in retail sales figures.

The ‘flash’ PMI figure for November – on an index where the 50-mark separates growth from contraction – gave a reading of 50.1.

That was up from 48.7 from October and ahead of economists’ expectations that it would remain unchanged this month.

The figures reflected a return to growth in the services sector, which covers everything from pubs and restaurants to solicitors and accountants, while the manufacturing sector continued to decline, though more modestly than before.

Tim Moore, economics director at S&P Global, which compiled the survey, said: ‘The UK economy found its feet again in November. 

Relief at the pause in interest rate hikes and a clear slowdown in headline measures of inflation are helping to support business activity.’

The figures will help to allay recession fears though they still suggest the UK is heading for a final quarter with zero growth.

But they showed the UK outpacing the eurozone, where the PMI reading improved from 46.5 to 47.1, suggesting another quarter of contraction for the bloc, which, if confirmed, would mean recession.

Meanwhile, a separate survey from market research firm GfK, carried out this month, showed a big pick-up in consumer confidence, especially for major purchases such as sofas and fridges.

Joe Staton, client strategy director at GfK, said: ‘Despite acute cost of living pressures, many would still like to loosen their purse strings a little so they can enjoy that feel-good factor we all associate with the festive season.’ 

And economists at Wall Street giants JP Morgan and Goldman Sachs upgraded their outlooks for the UK economy.

JP Morgan expected GDP to grow by 0.4 per cent, up from 0.2 per cent, while Goldman Sachs raised its forecast from 0.6 per cent to 0.7 per cent.

Goldman said it was revising its forecast after Hunt cut national insurance rates and extended tax reliefs available to small businesses that invest in plant and machinery.

It added that the ‘slightly more solid growth outlook… reinforces our view that the Bank of England is likely to start cutting rates in 2024 Q3 (Quarter 3) rather than Q2’.

The wider market has also pushed back bets on when the first interest rate cut will arrive, with August now seen as more likely than June.

This post first appeared on Dailymail.co.uk