UK economy picks up speed but Red Sea crisis hits factories

investing.com:

By William Schomberg

LONDON (Reuters) — Britain's economy started 2024 on a stronger footing, according to a survey of businesses published on Wednesday that prompted investors to reduce their bets on the Bank of England moving quickly to cut interest rates.

But while services firms grew more rapidly this month, Britain's long-struggling manufacturers were hit by the inflationary impact of tensions in the Red Sea, the Purchasing Managers' Index (PMI) showed.

Chris Williamson, S&P Global Market Intelligence's Chief Business Economist, said firms overall were bolstered by hopes of faster economic growth, falling inflation and lower borrowing costs.

«However, the surprising strength of growth in January, which has exceeded forecasts, may deter the Bank of England from cutting interest rates as soon as many are expecting, especially as supply disruptions in the Red Sea are reigniting inflation in the manufacturing sector,» he added.

The preliminary S&P Global/CIPS UK Composite PMI, spanning services and manufacturing firms, rose to 52.5 in January, its highest in seven months and up from December's 52.1.

Economists polled by Reuters had forecast a slightly smaller increase to 52.2.

The BoE is due to announce its latest decision on interest rates and its outlook for the economy on Feb. 1. Many investors and analysts have said they expect it will soften its stance against talking about cutting rates from nearly 16-year highs.

But investors took Wednesday's PMI as a sign that the BoE would be in no hurry to lower borrowing costs. Rate futures still showed investors broadly expecting four quarter-point rate cuts in 2024 but with less conviction than earlier in the day.

ING economist James Smith said the recovery in Britain's