UK business activity has once again surprised to the upside, extending a run of resilience that few expected earlier in the year. Easing geopolitical tensions in the Middle East and falling energy prices are taking the heat off cost pressures and margins, while receding expectations for further tightening from the Bank of England also appear to be underpinning sentiment.
That said, we’d caution against expecting the recent trend to last. Britain’s labour market continues to cool, and a fair degree of the resilience in activity seems to reflect precautionary stock-building ahead of potential supply disruption, rather than a genuine firming in demand. Seasonal boosts from the favourable summer weather and the FIFA World Cup are also likely to fade, while jitters around the Autumn Budget could resurface should businesses start bracing for further tax hikes.
All told, today’s survey data points to a UK economy that is still expanding – albeit at a modest rather than spectacular pace – with further softening likely as the year progresses.
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