UK business activity showed tentative signs of recovery in October, though conflicting signals between consumer resilience and fading business confidence have complicated the outlook for monetary policy.
S&P Global's Flash Composite PMI Output Index rose to 51.1 from 50.1 in September, marking its highest level in two months. The flash manufacturing output index climbed to 51.2, its strongest reading in 13 months, with producers reporting their first increase in production for a year. The services business activity index edged up to 51.1, though activity remained constrained by subdued sentiment ahead of the government's autumn Budget.
Cost pressures continued to ease, with input price inflation at its lowest since last November, aided by softer raw material prices and sterling strength against the dollar. Job losses also moderated to their mildest pace since May.
Chris Williamson, chief business economist at S&P Global Market Intelligence, suggested September may have marked "a low point for the economy from which business conditions are starting to improve."
"Output has picked up, with a particularly welcome return to growth for manufacturing for the first time in over a year, accompanied by an upturn in demand for services, notably among consumers," Williamson added.
However, Pierre Roke, analyst at Validus Risk Management, cautioned that today's data "paints a picture of two economies," following the release of stronger-than-expected retail sales for September.
Although manufacturing output rose to 51.2, the headline manufacturing PMI remained in contraction territory at 49.6, while services growth proved modest at 51.1.
"That divergence underscores a widening gap between consumer and business sentiment," said Roke. "Households are still spending, providing a tailwind to inflation that remains nearly twice the Bank of England's 2% target. Meanwhile, businesses are losing confidence amid weaker global demand, political uncertainty, and tighter credit conditions. If the Bank of England put more weight on the PMI, due to its forward-looking nature, we may likely see another rate cut before year-end."