The UK economy is in recovery, but I’m not sure it’ll last

We had the so called “technical recession” at the back end of last year. Are we now at the start of a “technical recovery”? 

Today’s decent UK PMI numbers for February provide the glimpse of a green shoot or two with the composite index at its highest level for nine months. 

At face value they suggest that GDP is set for a return to growth of some sort in the first quarter. But as every gardener knows, those tender stems remain vulnerable until the last frost of spring. 

And a closer reading of the PMI release suggests that there are still many cold nights ahead. The big worry — as it has been for the past two years — is inflation. According to Chris Williamson, chief business economist at S&P Global Market Intelligence, which compiles the PMI data, “there are a number of areas of concern.” 

The survey reveals that Red Sea shipping disruption has resulted in the highest level of supply chain delays since summer 2022. 

Those elevated shipping costs have inevitably been passed on with selling prices rising at their fastest rate for nine months. Worryingly, service sector inflation “also ticked higher.” 

The survey suggests that — after an energy bill-related dip in April — inflation may get stuck at around the 4% mark, twice the Bank of England’s target. Andrew Bailey said this week that interest rate-cutting could begin before the sunny uplands of a 2% CPI are reached. 

But with two rate-rise hawks still perched on the Monetary Policy Committee it seems unlikely that a dove majority could push through an economy-boosting cut while inflation stays stubbornly high. 

So while any signs of an upturn in activity, confidence and growth are to be warmly welcomed, the recent encouraging hopes of a rapid reduction in borrowing costs in the second half of 2024 may yet turn out to be merely “technical” optimism.