The sharp rise in the composite PMI in February, to its highest level since June, suggests that the UK economy is rebounding from Omicron at a reasonable pace. The PMI was well above its average level in the second half of 2021 – 56.3 – when GDP grew by 1.0% in the third and fourth quarters. The rise in the composite PMI largely reflected a jump in the services PMI to an eight-month high. In addition, the manufacturing sector, largely unaffected by Omicron, benefited from further easing of supply chain disruptions; the supplier lead time index hit a 15-month high of 31.9, from 30.4.
February’s PMIs are other timely indicators that suggest activity has picked up in recent weeks. For example, transport usage data showed rail passenger numbers in the seven days to February 14 had risen to 63% of their level on the same days in 2019, from 60% a week earlier.
All in all, we are therefore revising our forecast for quarterly GDP growth in the first quarter upwards to 0.6%, against 0.3% previously.
Alas, a large majority of companies surveyed by Markit are still raising their prices; the manufacturing producer price index fell only to 69.1 from 70.9 in January, while the balance of invoiced prices from the services survey fell only to 63.2, down from 63.9. The combination of renewed economic activity and widespread price increases suggests that the MPC will almost certainly raise the Bank Rate to 0.75% at next month’s meeting.