U.K. Economy Shows Signs of Resilience Despite Headwinds

The U.K. economy has shown signs of resilience despite a number of headwinds, according to recent data. The U.K. composite Purchasing Managers’ Index returned to growth in February after six months of declines, with both manufacturing and services output increasing. Meanwhile, the U.K. government posted a surprise surplus in January, and the British pound jumped against the dollar.

U.K. PMI Returns to Growth in February

The U.K. composite Purchasing Managers’ Index (PMI) returned to growth in February after six months of declines. Both manufacturing and services output increased in the survey, though the latter was stronger. Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a note that the figures “indicate encouraging resilience of the economy” despite headwinds such as higher interest rates, the cost of living crisis, labor shortages and strikes.

However, Williamson noted that elevated inflation pressures remain a concern, especially in the service sector. This adds to the likelihood of the Bank of England tightening policy further, which may dampen future growth expectations and suggests that the possibility of recession later in the year should not be ruled out.

Stocks on the Move

In late morning trade, British medical equipment manufacturer Smith & Nephew was the top performer on the Stoxx 600, up 5.2%. The company reported slightly higher revenue but a drop in operating profit from $936 million to $901 million for 2022. It also said it had seen strong revenue growth in the fourth quarter and was making good progress on its plans for revenue growth of 5-6% and a trading profit margin of at least 17.5% next year.

Credit Suisse remained at the bottom of the index, down 6.2% on reports that it is being reviewed by the Swiss financial regulator for comments made by its chairman.

U.K. Government Posts Surprise Surplus in January

The U.K.’s public sector spent less than it received in income in January, the U.K.’s Office for National Statistics said Tuesday, surprising economists. Public sector net borrowing (PSNB) was £1.1 billion ($1.5 billion), compared to a forecast of a £3.4 billion deficit.

The government attributed the surplus to higher income tax receipts, which rose by £1.5 billion compared to the same month last year. However, the Office for Budget Responsibility warned that the surplus was unlikely to be sustained, as borrowing is expected to pick up in the coming months.

Related Facts

• The U.K. composite PMI returned to growth in February after six months of declines.
• Smith & Nephew reported slightly higher revenue but a drop in operating profit from $936 million to $901 million for 2022.
• Credit Suisse is reportedly being reviewed by the Swiss financial regulator for comments made by its chairman.
• The U.K. government posted a surprise surplus in January, with public sector net borrowing (PSNB) coming in at £1.1 billion.

Key Takeaway

The U.K. economy has shown signs of resilience despite a number of headwinds. The U.K. composite PMI returned to growth in February, Smith & Nephew reported higher revenue, and the U.K. government posted a surprise surplus in January. However, the Bank of England may tighten policy further, which may dampen future growth expectations and suggests that the possibility of recession later in the year should not be ruled out.

Conclusion

The U.K. economy appears to be weathering the storm of headwinds, with recent data showing signs of resilience. While the near-term outlook is encouraging, the Bank of England’s potential policy tightening could dampen growth expectations in the future.