UK private sector output expands, cost pressures loom

Britain’s private sector saw robust expansion in April, according to fresh data on Tuesday, marking the sixth consecutive month of growth.

The S&P Global flash UK PMI composite output index rose to 54.0, reaching its highest level since May 2023, driven primarily by a surge in service sector output.

However, manufacturing production saw a slight decline, attributed to weak market conditions and reduced demand.

New order volumes across the private sector saw a notable uptick, with the rate of growth being the strongest since May last year.

Service providers recorded a particularly sharp increase in business activity, fueled by rising consumer and business spending.

Despite that, some firms noted challenges such as cost of living pressures and subdued client confidence, which tempered growth.

Private sector employment expanded slightly in April, with the rate of job creation accelerating since March.

That increase was attributed to rising business activity and the need to enhance operating capacity.

However, constraints on hiring were observed due to a shortage of suitable candidates and the non-replacement of voluntary leavers amid cost pressures.

Cost pressures intensified in April, with input price inflation reaching its highest level since May 2023.

That was primarily driven by higher staff wages, particularly in the hospitality and leisure sector.

While service providers experienced a sharper rise in input prices compared to manufacturers, the latter saw the greatest increase since February 2023, mainly due to higher transportation and raw material costs.

Despite the surge in input costs, the rate of prices charged inflation across the private sector economy moderated slightly in April.

Service providers led the trend, with prices charged inflation falling for the second consecutive month.

Competitive pressures and efforts to stimulate sales were cited as reasons for limiting the pass-through of higher salary costs to clients.

Looking ahead, business activity expectations for the next 12 months remained optimistic in April, with sentiment being higher than any time in 2023.

However, manufacturers signalled the lowest level of optimism so far this year, citing factors such as elevated borrowing costs and domestic political uncertainty ahead of the general election as potential dampeners of business confidence.

“Early PMI survey data for April indicate that the UK economy's recovery from recession last year continued to gain momentum,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“Improved growth in the service sector offset a renewed downturn in manufacturing to propel overall business growth to the fastest for nearly a year, indicating that GDP is rising at a quarterly rate of 0.4% after a 0.3% gain in the first quarter.

“The upturn encouraged firms to take on workers in increased numbers which, alongside April's rise in the National Living Wage, drove cost pressures sharply higher.”

Williamson said that although selling price inflation cooled slightly, the upturn in costs alongside solid demand suggested firms could seek to raise prices in the coming months.

“While the improving economic recovery picture is welcome news, the upward pressure on inflation will add to concerns that a sustainable path to below target inflation has not yet been achieved.”

Reporting by Josh White for Sharecast.com.