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UK businesses suffer January chills as cost pressures rage: PMI -Breaking

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© Reuters. FILEPHOTO: See the City of London Financial District as Londoners walk the River Thames’ south bank amid the COVID-19 outbreak. This was March 19, 2021 in London. REUTERS/Henry Nicholls/File Photograph

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Andy Bruce

LONDON (Reuters – British business activity cooled to an unexpectedly low level this month, but the Bank of England is on track for raising interest rates next Wednesday.

From 53.6, the IHS Markit/CIPS Composite PMI (Purchasing Managers Indicator) fell in January to 53.4. Although it was still above the 50 dividing lines between growth and recession, a Reuters poll by economists pointed to a reading 55.0.

Consumer-facing businesses were again affected by the Omicron coronavirus. Manufacturers reported that orders rose at the slowest rate for one year, while business and financial service companies experienced faster growth.

According to the flash PMIs, France, Germany and Britain had similar levels of economic performance.

This PMI survey indicates that the UK’s economy suffers from a hangover after the Omicron surge. Adam Hoyes, Capital Economics economist said, “We still believe GDP will recover fairly quickly over the remainder of Q1.”

The data did not affect the British and Sterling government bonds prices.

After a dip in December, the BoE observed that prices paid by service companies and gauges of cost increased in January.

Chris Williamson of IHS Markit chief business economist said that “inflationary pressures are still elevated at near record levels” and this increases the probability of the Bank of England increasing interest rates once again at its forthcoming meeting.

A Reuters poll released Friday showed that 29 of the 45 economists polled by Reuters said the BoE will raise interest rates to 0.5%, from 0.25%, on February 3. [ECILT/GB]

British consumer price inflation reached a record high of 5.4% during the twelve months to December. Many economists believe it will rise beyond the BoE’s latest estimate of an April peak at 6%.

The PMI of the services sector dropped to 53.3 in January from 53.6 December, its lowest reading since February 2012.

The manufacturing PMI fell to 56.9, from 57.9 December. However, this decline was due to the survey’s measurement of supply chain delays. This decreased further in December.

Rhys Herbert (Senior Economist at Lloyds (LON) Bank) stated that there have been indications that supply chain pressures are starting to ease.

“But, the energy crisis, and reports that new checks are causing delays in ports are challenging many businesses in the sector,” he stated, speaking of the most recent customs rules for trade between Britain (and the European Union).

Contrary to the larger services sector where prices were much higher, manufacturing price pressures slowed in January.

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