UK business activity hits six-month high in December

UK business activity rose to a six-month high in December,, according to a survey released on Friday.

The S&P Global/CIPS flash UK composite output index - which measures activity in the manufacturing and services sectors - ticked up to 51.7 from 50.7 in November. This was above consensus expectations for a reading of 51.0.

A reading above 50.0 indicates expansion, while a level below signals contraction.

The flash services purchasing managers’ business activity index rose to 52.7 in December from 50.9 in November, also a six-month high.

The manufacturing output index printed at 45.9, versus 49.2 in November and the manufacturing PMI was 46.4 in December, down from 47.2 the month before.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The UK economy continues to dodge recession, with growth picking up some momentum at the end of the year to suggest that GDP stagnated over the fourth quarter as a whole. While employment meanwhile fell for a fourth month, the decline was only marginal and not indicative of any material rise in unemployment.

"This is, however, a dual-speed economy, with manufacturing contracting sharply while services regained some poise, the latter growing faster in December thanks in part to financial services activity being buoyed by hopes of lower interest rates in 2024.

"This divergence is also reflected in inflation pressures, with falling prices again evident in the goods producing sector while service providers report persistent elevated inflationary pressures, often linked to wage growth. The resulting signal is one of inflation remaining stubbornly above 3% in the coming months."

Willianson said the service sector’s resilience and sticky inflation picture will add to speculation that it’s too early for the Bank of England to talk about rate cuts, and will add fuel to some policymakers’ calls for further hikes.