UK private sector output grows as confidence improves

UK private sector output continued to grow in March, a closely watched survey showed on Friday, boosted by the service economy.

The flash S&P Global CIPS UK Composite Output Index was 52.2 in March, down on February’s eight-month high of 53.1 and marginally missing the consensus for 52.7, but still above the no change level of 50.0.

A reading above 50.0 indicates growth, while one below suggests contraction.

Within that, the services PMI business activity index was 52.8, down on February’s 53.5.

New business received by service sector companies rose at the sharpest pace for 12 months, although staff shortages continued to hold growth back.

The manufacturing output index, however, fell to 49.0 from February’s 50.9, while manufacturing PMI eased to 48.0 from 49.3. Order books remained subdued across the manufacturing sector.

Although respondents reported that average cost burdens had increased sharply across the survey period, the overall rate of inflation moderated for the fourth month in a row, and now stands at its lowest since March 2021.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The UK economy looks to have returned to growth in the first quarter. The surveys are broadly consistent with GDP growing at only a modest quarterly rate of 0.2%, but this represents a welcome expansion compared to the lack of growth in the second half of last year."

John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: "The manufacturing sector’s undoing remained falling pipelines of new work. In spite of supply chain strength returning, less work resulted in job shedding and lower purchasing volumes as the sector failed to gain momentum and fell into contraction again.

"With optimism the strongest since march 2022, private sector businesses are relieved that the UK appears to have dodged recession, technically at least, though customs delays and the painful price increases in items such as food and fuel remain challenges for the year ahead."

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: "The slight fall in the composite PMI suggests that tensions in the banking sector triggered a slight cautious shift in company boardrooms, but still is consistent with the economy faring remarkably well in the face of rapid inflation and higher interest rates.

"Don’t forget, however, that the composite PMI covers sectors account for only 51% of GDP; the retail, construction and public sectors are excluded. While retail sales look set to edge up in the first quarter, the adverse impact of the jump in interest rates over the last year on construction output will continue to grow. Strikes will also weigh materially on GDP."

Data were collected between 10 and 22 March, with surveys sent to panels of around 650 manufacturers and 650 service providers.