UK Business Activity Picks Up After Pre-Election Lull

• British business activity picked up this month after a lull in the run-up to a July 4 election, bolstered by the fastest manufacturing growth in two years and the strongest inflow of new orders since April 2023.
• The figures may cheer Prime Minister Keir Starmer's new government - which is targeting faster growth to allow higher public spending - and the Bank of England too, as inflation pressures fell to their lowest in more than three years.
• Although growth so far this year has exceeded most forecasters' expectations, Britain's economy has performed relatively poorly since the COVID-19 pandemic. Among the Group of Seven rich economies, only Germany has done worse, as it took an even bigger hit than Britain from the surge in European natural gas prices, which followed Russia's full-scale invasion of Ukraine in 2022.
• There were, however, positives in July's S&P Global Flash Composite Purchasing Managers' Index as it rose to 52.7 from June's six-month low of 52.3, a shade higher than the 52.6 forecast in a Reuters poll of economists. The result was also stronger than the same survey for the eurozone, which fell to 50.1 from 50.9, below all economists' forecasts and within a whisker of recessionary territory.
• However, consultancy Capital Economics estimated that the PMI reading was only consistent with a quarterly growth rate of 0.2% in July, below the robust pace of 0.6%-0.7%, which they forecast for the three months to the end of June.
• Britain's economy grew just 0.1% last year. The International Monetary Fund forecasts 0.7% growth for 2024. The BoE will publish new inflation forecasts on Aug. 1, but investors have scaled back bets that it will cut interest rates from their 16-year high of 5.25% after data last week showed services price inflation and wage growth remained high.

(Source: Reuters)