UK economy shows signs of recovery despite inflation's drag

British businesses reported their busiest month in a year and consumers turned more confident, according to surveys published on Friday that added to signs of a recovery in the economy that has so far defied forecasts of a recession.

The preliminary reading of the S&P Global/CIPS UK Composite Purchasing Mangers' Index (PMI) also showed the slowest input cost inflation in over two years, but price pressures look strong enough for the Bank of England to raise rates again next month.

The PMI — spanning services and manufacturing firms — rose to 53.9 in April from 52.2 in March, putting it further above the 50 line denoting growth for the third consecutive month and representing the strongest growth since April last year. Economists had forecast a lower reading of 52.5.

"The key takeaway is that the economy as a whole is not only showing encouraging resilience but has gained growth momentum heading into the second quarter," Chris Williamson, chief business economist at S&P Global, said.

The PMI was driven by the services sector as consumer spending on travel, leisure and entertainment showed strength while manufacturing remained weak.

Williamson said the survey was consistent with quarterly gross domestic product growth of 0.4 per cent.

Last month, the BoE said it expected modest economic growth in the second quarter of 2023, though it still predicted a contraction in the first quarter.

It is widely expected to increase borrowing costs for the 12th meeting in a row in May as it continues to grapple with an inflation rate above 10 per cent.

The International Monetary Fund this month predicted that Britain's economy would shrink by 0.3 per cent in 2023, a less severe hit than its previous forecast but still the sharpest contraction among the world's big rich economies this year.

S&P Global's input price index — a good guide to future inflation pressures — showed the slowest growth in costs for firms since March 2021, although overall cost pressures remained high by historical standards.

"A strong performance from retailers in January and February means the three-month picture shows positive growth for the first time since August 2021," he said.