The sharp rise in the composite PMI in February, to its highest level since June, suggests that the U.K. economy is rebounding from Omicron at a fair clip. The PMI was well above its average level in the second half of 2021—56.3—when GDP rose by 1.0% in both Q3 and Q4. The rise in the composite PMI largely reflected a jump in the services PMI to an eight-month high. In addition, the manufacturing sector—which was largely unscathed by Omicron—benefited from a further easing of supply chain disruptions; the suppliers’ delivery times index rose to a 15-month high of 31.9, from 30.4.
February’s PMIs chime with other timely indicators that suggest activity has picked up in recent weeks. For instance, transport usage data showed that rail passenger numbers in the seven days to February 14 rose to 63% of their level in the same days of 2019, up from 60% a week earlier.
All told, then, we are now revising up our forecast for quarter-on-quarter GDP growth in the first quarter to 0.6%, from 0.3% previously.
Alas, a large majority of companies surveyed by Markit still are hiking prices; the output price index of the manufacturing sector fell only to 69.1, from 70.9 in January, while the prices charged balance of the services survey fell merely to 63.2, from 63.9. The combination of reviving economic activity and widespread price increases suggests that the MPC almost certainly will raise Bank Rate to 0.75% at next month’s meeting.
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