UK companies report faster growth and lower inflation as a boon for BOE – BNN Bloomberg

(Bloomberg) — U.K. private companies reported their strongest growth in four months as price pressures eased, suggesting the economy remains in a favorable position for both the Bank of England and the new government.

S&P Global's purchasing managers' index rose to 53.4 in August, from 52.8 in the previous month. That was slightly above the 53 expected by economists, with any reading above 50 indicating an expansion.

Meanwhile, inflation relative to companies' own costs has fallen to its lowest level since early 2021. The main reason for this is the services sector, which is closely monitored by the BOE.

The figures suggest that healthy economic growth is not adding to inflationary pressures. Although the central bank cut interest rates for the first time in more than four years earlier this month, Governor Andrew Bailey said the strength of the recovery cautioned him against loosening monetary policy too quickly.

Money markets maintained their bets on rate cuts, expecting a quarter-percentage point cut by November and a 65 percent chance of another cut by year-end. The pound rose 0.2 percent to $1.3114, while government bonds eased, pushing the 10-year yield up two basis points to 3.91 percent.

Signs of a sustained recovery are also giving a boost to Keir Starmer's Labour government, which depends on the fulfilment of ambitious growth promises in order to find enough money for the crisis-hit public service.

“August has seen a welcome combination of stronger economic growth, improved job creation and lower inflation,” said Chris Williamson, chief economist at S&P Global Market Intelligence. “The latest survey data therefore helps lower the bar for further rate cuts.”

He said the purchasing managers' index (PMI) indicated economic growth of around 0.3 percent quarter-on-quarter, slower than the strong GDP growth rates of 0.7 percent and 0.6 percent in the first and second quarters respectively.

The services sector, Britain's largest industry, was the engine of growth in August, reaching a four-month high. The purchasing managers' index for manufacturing also climbed to its highest level in over two years.

Companies hired staff at a faster pace than in over a year and reported the fifth consecutive increase in incoming orders.

– With support from Rachel Evans.

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