The UK economy extended a run of better-than-expected growth in February, more evidence of a rebound after fourth-quarter stagnation.
While the expansion continued apace, there were also signs of a hit to supply chains from coronavirus, according to IHS Markit’s flash purchasing managers index.
The virus’s outbreak weighed on manufacturers’ input stocks, which fell at the fastest pace in more than seven years. Some orders from clients in Asia were canceled and extended shutdowns in China proved a headwind.
Nevertheless, manufacturing output grew the fastest in 10 months, offsetting a small downward move in services. Growth expectations in the private sector edged up slightly, the report showed.
The pound held gains after the report and traded at $1.2922 as of 9:31 a.m. in London.
“The recent return to growth signaled by the manufacturing and services PMIs provides a clear indication that the U.K. economy is no longer flat on its back,” said Tim Moore, an economist at IHS Markit. The expansion is running at a 0.2% pace in the first quarter, he said.
Firms noted that a reduction in political uncertainty since the December election, when Boris Johnson’s victory gave a clear path to Brexit, translated into higher business activity and more spending by clients.
This and other reports support the case for the Bank of England to refrain from cutting interest rates soon. Figures this week showed the labor market remains tight and consumer spending is picking up.
IHS Markit’s index for output across the whole economy was unchanged at 53.3 in February, a better reading than the 52.8 forecast by economists and well above the critical 50-mark that separates expansion from contraction.