UK Business Activity Returns to Growth, but Recovery Remains Fragile

LONDON — UK private-sector activity returned to growth in July for the first time in three months, according to preliminary purchasing-managers' data.

The S&P Global UK Composite Purchasing Managers' Index rose from 49.3 in June to 52.1 in July. A reading above 50 indicates expansion, while a figure below 50 suggests contraction.

The result was the strongest since February and exceeded economists' expectations. Both service businesses and manufacturers reported increased activity, supported by an earlier easing in fuel and raw-material costs, favourable weather and improved confidence.

The index is an early survey-based measure rather than an official calculation of national output. It shows whether companies report improvement or deterioration compared with the previous month but does not measure the total amount of economic activity.

Employment continued to decline despite the improved output figures. Reuters reported that businesses remained cautious about recruitment, partly because of earlier increases in employer social-security costs and continuing uncertainty about demand.

Retail conditions also remained difficult. Separate CBI figures published on Monday showed that the decline in retail sales became less severe in July, but businesses continued reporting weak demand and significant cost pressure.

The recovery may be vulnerable to renewed increases in oil and gas prices. Higher energy costs could raise transport and manufacturing expenses, reduce household spending power and increase pressure on inflation.

A sustainable recovery would require more than a single positive monthly reading. New orders, investment and employment would need to continue improving, while inflation and business costs remained manageable.

The July figure is encouraging, but it should be read as an early sign of improvement rather than proof that the UK economy has entered a strong or lasting expansion.

Source: S&P Global; Reuters