By David Milliken
LONDON (Reuters) – British businesses recorded their fastest growth in activity in nearly a year this month, according to preliminary purchasing managers’ data that points to a bigger rebound from last year’s shallow recession than economists had been expecting.
However, businesses’ costs also rose at the fastest pace in nearly a year due to rising wages and higher prices for transport and raw materials – factors which may make the Bank of England more cautious about cutting interest rates.
The S&P Global UK Composite Purchasing Managers’ Index for the services and manufacturing sectors jumped to an 11-month high of 54.0 in April from March’s 52.8, above all forecasts in a Reuters poll of economists.
The gain was led by an big rise in the services index to 54.9 from 53.1, while the index for the smaller manufacturing sector unexpectedly fell to 48.7 from 50.3, a move below 50 that takes it into contractionary territory.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the data pointed to the economy growing at a quarterly pace of 0.4% in April, up from an estimated 0.3% in the three months to March.
“Early PMI survey data for April indicate that the UK economy’s recovery from recession last year continued to gain momentum,” he said.
Last month the Bank of England estimated the economy grew just 0.1% in the first quarter and would do only slightly better in the second.
Stronger growth increased the chance that businesses would raise prices in response to their increasing costs, posing a challenge to the BoE as it seeks to return inflation to its 2% target, Williamson said
While a fall in regulated energy tariffs is likely to push inflation below 2% in the current quarter, last month the BoE forecast it would rise back towards 3% later in the year.
However, on Friday BoE Deputy Governor Dave Ramsden said he saw some signs that inflation might stay near 2%.
Financial markets expect the BoE to lower rates by at least half a percentage point this year, with the first cut coming in June or August.
(Reporting by David Milliken; editing by Christina Fincher)
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