"UK economic data this week has shown a better than expected recovery following the outcome of last month’s election, making a rate cut next week less likely."
The flash IHS Markit/CIPS PMI reading has risen to a 16-month high, signalling business growth for the first time since August as pent-up demand is released in the wake of the General Election.
The reading for the UK registered at 52.4, ahead of estimates of 50.5, showing that the private sector is returning to growth with manufacturing and services PMIs exceeded forecasts by some margin.
Joe Healey, investment research analyst at The Share Centre, commented: “January’s flash PMI estimates have exceeded market expectations showing a solid rebound in activity post-election. I can’t see the Bank of England cutting rates following this data release today.
"Early signs of a revival in confidence alongside the prospects of looser fiscal policy and a more supportive global environment should hold off decision-makers from cutting."
Andy Scott, associate director at JCRA, added: “UK economic data this week has shown a better than expected recovery following the outcome of last month’s election, making a rate cut next week less likely. Sterling rallied to a 5-week high above 1.19 versus the Euro in the lead up to the PMI data release, as a combination of weaker euro zone PMI data and market expectations of stronger UK surveys drove demand for the UK currency. Sterling did however drop around half a percent after the data, reflecting the fact that the chance of a rate cut is still 50/50.
“So far, the evidence points to a significant pick up in UK business optimism and consumer confidence following the Conservative’s convincing election victory. We expect this is likely to mean that the Bank of England keeps rates on hold next week, preferring to wait and see whether the economy is starting to reverse the weakening growth trend.
“Having been faced with several Brexit paths that left UK politics completely dysfunctional and businesses unable to plan much beyond a few months ahead, there is now just one path. The increased certainty - even with the future trading relationship still to be defined – along with a majority government that will allow Westminster to function more efficiently, should encourage businesses and investors to start committing capital again. With the government also pledging to invest significantly over the coming years, perhaps there is reason to follow Boris Johnson’s lead and be more optimistic over the prospects for the UK economy.”
