UK may still suffer first-quarter GDP fall despite February PMI lift

(Alliance News) - Analysts at Pantheon Macroeconomics still believe the UK will fail to avert a first-quarter gross domestic product decline, despite bullish survey results from S&P Global on Friday.

The latest S&P Global/CIPS UK composite purchasing managers' index rose to 53.1 points in February from 48.5 points in January.

Pantheon Macroeconomics Chief UK Economist Samuel Tombs said it is "too soon to conclude that a recession has been avoided".

Tombs noted the average PMI reading so far in the first quarter is 50.8 points, which would be "consistent" with meagre 0.1% gross domestic product growth.

However, the analyst cautioned that the PMI's prediction is typically "wide of the mark" by 0.3%.

"This error margin partly stems from the fact that the composite PMI covers sectors of the economy accounting for just 51% of GDP. It excludes the retail sector, which is at the sharp end of the pull back in households’ real expenditure, the construction sector, which will be among the hardest hit by the sharp increase in borrowing costs, as well as the strike-afflicted public sector. Note too that both the CBI's monthly Growth Indicator and Lloyds Business Confidence survey still were consistent in February with GDP falling marginally in the first quarter," Tombs added.

"Accordingly, we continue to think that GDP likely fell by about 0.2% quarter-on-quarter in Q1."

It will be a "tough year" for UK households despite the PMI data improvement, BRI Wealth Management analyst Tom Hopkins warned.

"Today's data from February's survey pointed to an easing in inflationary pressures. It also points to stronger levels of optimism regarding growth prospects, thanks partly to the abating of political uncertainty. We would proceed with caution from here. Core Inflation is proving stubborn and consumer spending continues to be squeezed due to cost of living difficulties and higher borrowing costs. We think it'll be a tough year for UK households," the analyst explained.

By Eric Cunha, Alliance News news editor

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