The UK private sector is growing at its fastest pace since last summer as the easing of Covid-19 restrictions prompts increased spending on travel, leisure and entertainment.
Stronger consumer spending is behind a pickup in service sector activity, according to the “flash” estimate of the state of the economy in February provided by IHS Markit and the Chartered Institute of Procurement and Supply (Cips).
But the monthly health check also found growing inflationary pressures driven by higher wages, dearer energy and more expensive raw materials.
Chris Williamson, the chief business economist at IHS Markit, said the combination of strong growth and a rising cost of living was likely to prompt a further increase in interest rates from the Bank of England next month.
“The latest PMI surveys indicate a resurgent economy in February, as business activity leaped as Covid-19 containment measures were relaxed.
“With the PMI’s gauge of output growth accelerating markedly in February and cost pressures intensifying to the second highest on record, the odds of an increasingly aggressive policy tightening have shortened, with a third back-to-back rate rise looking increasingly inevitable in March.”
The monthly purchasing managers’ index from IHS Markit/Cips provides an early guide to how the private sector is performing each month. The release coincides with the lifting of all remaining Covid-19 restrictions in England.
Activity in the service sector rose from 54.1 to 60.8 – the highest level since June, while manufacturing remained unchanged at 57.3. A reading above 50 suggests output is rising.
The survey said private sector companies were reporting a steep increase in incoming new work in February, with higher workloads leading to a pickup in recruitment. “Stronger client demand was widely linked to improving confidence about the UK economic outlook and rollback of pandemic restrictions,” it said.
Samuel Tombs, a UK economist at Pantheon Macro, said: “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 fair clip. The PMI was well above its average level in the second half of 2021 – 56.3 – when GDP rose by 1.0% in both the third and fourth quarters.”