February’s Growth Indicator signaled another decline in private sector activity, as business volumes fell in all three major sub-sectors (manufacturing, non-financial services and distributive trades). But expectations are for modest growth over the next three months, which are at their strongest in almost two years, with all parts of the private sector expecting a return to growth. This mirrors GDP data from the ONS that showed month-on-month growth of 0.2% in January, suggesting that the economy is on course to exit its mild recession – laying the foundation for firmer growth over Q2 2024.
A 9-month high in February’s composite Purchasing Manager’s Index (PMI), followed by a similarly firm outturn in March’s flash PMI, also signalled that the economy may be turning a corner.
The anticipated uptick in growth comes alongside signs that tightness in the labour market is gradually easing. The unemployment rate ticked up to 3.9% in the three months to January, and the number of vacancies continued to fall steadily (though remains 10% above pre-pandemic levels).
The Bank of England will be relieved that wage growth is slowing, with private sector wage growth (excl. bonuses) coming in at 6.1% in the quarter to January, from 7.2% in the previous quarter. Hiring intentions across our surveys are modest, but relatively resilient. Business & professional services, consumer services and distributive trades anticipate employment to rise, offsetting manufacturers who expect broadly unchanged headcount over the next three months.
There’s also positive news on the inflation front as the latest CPI data surprised to the downside (relative to consensus expectations) once again in February, falling to 3.4% from 4.0% in January, marking the lowest outturn in nearly two-and-a-half years. The steady decline in inflation reflects downward pressures on prices in energy & transport (and slower rises in food prices), as global shocks in recent years have receded. But core (4.5%) and services (6.1%) inflation remain more elevated, which is consistent with above-average price pressures in our surveys.
Selling price expectations for the next three months (+24%) are double the long-run average: selling price expectations have ticked up for manufacturers and business & professional services firms, while distribution and consumer services expect price pressures to be broadly unchanged over the next three months.
Source: CBI Growth Indicator – March 2024
