- UK outperforms Europe economically.
- Eurozone faces decline in activity.
- Bank of England maintains high interest rates.
The British economy outperformed its European counterparts as business activity peaked at its highest level in six months towards the end of the year.
According to a closely followed indicator released yesterday, December output increased for the second consecutive month as the United Kingdom continued to evade a recession.
This month, however, commercial activity in the eurozone declined at a more pronounced rate.
Except in the early 2020 Covid months, output in the bloc has decreased rapidly in eleven years, with declines documented in the manufacturing and service sectors.
According to research, December marked the second consecutive month of private sector output growth as the economy displayed indications of recovery.
The acceleration was the most rapid since June, propelled by a recovery in the service sector. The figures are a relief after data released on Wednesday revealed an unexpected 0.3% contraction in the economy for October.
For the third straight meeting on Thursday, the Bank of England kept interest rates at 5.25 percent, a 15-year high.
Despite the central bank’s warning that the base rate must remain elevated to return inflation to its objective of 2%, the financial markets are placing bets on rate cuts for the following year. According to Chris Williamson, chief business economist at S&P Global Market.
Economic Landscape and Dual-Speed Dynamics
Intelligence, the economy managed to avert recession once more, as evidenced by the acceleration of growth towards the end of the year, which implies that the overall GDP for the fourth quarter remained stagnant.
Next week, when inflation data is disclosed, all eyes will be on it. This month, the S&P Global CIPS Purchasing Managers’ Index (PMI), which measures activity in the manufacturing and services sectors, increased to 51.7 from 50.7 in November.
A PMI measurement over 50 indicates an expansion in activity instead of a contraction. Simultaneously, the eurozone index decreased from 47.6 in November to 47 in December. The bloc experienced its seventh consecutive monthly decline in commercial activity.
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Notwithstanding the generally favourable report for the United Kingdom, manufacturing output declined at a “notably faster rate” than in November. This decline persisted for the tenth consecutive month.
“It was a dual-speed economy,” according to Williamson, “with manufacturing contracting sharply and services regaining some poise.”
According to John Glen, the chief economist at CIPS (the Chartered Institute of Procurement & Supply), a tentative resurgence in customer demand and an upsurge in new work are being propelled by stable interest rates.
“However, the manufacturing sector in the United Kingdom will be relieved to see 2023 come to an end.”
