Private sector output expanded for the second month running in December, which continued a modest recovery from the downturn seen during the three months to October, the latest S&P Global / CIPS Flash UK Purchasing Manger’s Index (PMI) has revealed.
Higher levels of business activity were supported by an improvement in order books, alongside efforts to work through post-pandemic backlogs.
At 51.7 in December, up from 50.7 in November, the seasonally adjusted Flash UK PMI Composite Output Index pointed to the fastest rise in private sector business activity since June.
However, the latest index reading remained weaker than the long-run survey average (53.6) and only pointed to a modest rate of output expansion.
A moderate upturn in business activity across the service economy underpinned the rebound in overall private sector output at the end of 2023.
Survey respondents commented on tentative signs of a revival in customer demand, especially for technology and financial services.
Anecdotal evidence cited cost-of-living pressures on household budgets and subdued conditions in the construction sector as ongoing headwinds to growth in some parts of the service economy.
Manufacturing production decreased for the 10th month running, and at a notably faster pace than in November.
Goods producers reported a slide in output volumes due to overstocked customers and tighter inventory policies at their own plants.
Meanwhile, efforts to reduce backlogs of work provided some support to production schedules, but survey respondents suggested that this impetus had waned in December.
UK private sector firms revealed an increase in total new work for the first time since June, albeit only marginal.
Survey respondents cited a stabilisation in interest rates and hopes of a modest recovery in underlying economic conditions as factors helping to support demand, despite continued hesitancy to spend among customers.
Reaction:
Stephen Perkins, managing director at Yellow Brick Mortgages:
“These figures are reflective of what’s happening on the ground. Enquiry numbers have been strong in November and December, as falling mortgage rates and expectations that the base rate has now peaked boost confidence.
“Among prospective buyers, who are emerging in greater numbers, the main challenge is the lack of available property on the market.
“The latest inflation data and contraction in GDP in October suggest the base rate may fall sooner than originally expected, whatever the Bank of England says, and mortgage rates have already been reducing on the back of growing lender confidence in the medium-term outlook.”
Riz Malik, director at R3 Mortgages:
“The slight revival in the service sector could be down to several factors.
“The likelihood is that the prospect of lower interest rates, potential tax cuts and a General Election in 2024 could be the main catalysts.
“There’s not quite a feel-good factor among financial services firms yet but they’re certainly feeling better.”
Ranald Mitchell, director at Charwin Private Clients:
“We’ve seen an increase in demand since September, with enquiry numbers continuing strongly.
“A reasonable proportion of these are distressed households who are at risk of falling over or have fallen behind, due to levels of unsecured credit, coupled with the increases in costs of mortgages, energy and living.
“The hopes of lower rates in 2024 are now almost a given with the lender pricing war as fierce as ever, and pressure on the Bank of England to reduce rates sooner rather than later.”
Charles Breen, director at Montgomery Financial:
“We have been a serviced-based economy ever since Thatcher gouged out our manufacturing base, and financial services forms a big part of that.
“The expectation of rate cuts was always going to see the services sector bounce back strongly and that’s what’s happening, with activity, investment and confidence levels all increasing as a result.”
