# UK economy’s unexpected bounce spurs more BoE rate hike talk Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-02-21 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Surprise UK Business Growth Raises Hopes of BoE Rate Hike Meta Description: Britain's economy shows signs of recovery as businesses grow, raising possibility of Bank of England interest rate hike in March. URL: https://financedigest.com/uk-economys-unexpected-bounce-spurs-more-boe-rate-hike-talkhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-02-21t102256z3lynxmpej1k0b7rtroptp4britain-economy-pmi-1736814423506-compressed.jpg) By Andy Bruce LONDON (Reuters) -Britain looks on course to sidestep a long recession after a survey showed a surprise return to growth by businesses this month, raising the likelihood of another Bank of England interest rate hike in March. The preliminary “flash” reading of the S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI) jumped to 53.0 in February from 48.5 in January, above the 50 threshold for growth for the first time since July. It surpassed all forecasts in a [Reuters poll](https://www.financedigest.com/european-central-bank-to-raise-deposit-rate-to-3-25-by-mid-year-reuters-poll.html "European Central Bank to raise deposit rate to 3.25% by mid-year: Reuters poll") of more than 20 economists, which had pointed to a reading of 49.0. Sterling [jumped against the dollar](https://www.financedigest.com/dollar-jumps-as-powell-flags-higher-terminal-rate.html "Dollar jumps as Powell flags higher terminal rate") and notched its biggest gains against the euro in a month, while British government bond prices fell on the back of the PMI which was stronger than readings for both France and Germany. The strength of the survey made it more likely that the BoE – grappling with an inflation rate still above 10% – would [raise](https://www.financedigest.com/dollar-falls-after-fed-raises-rates-forecasts-future-hike.html "Dollar falls after Fed raises rates, forecasts future hike") interest rates to 4.25% in March, despite further signs of easing price pressures in the PMI, economists said. The report poses a clear challenge to the BoE’s central view that a long recession and [rise in unemployment will bring inflation](https://www.financedigest.com/european-shares-rise-as-us-inflation-data-signals-end-of-rate-hike-cycle.html "European shares rise as US inflation data signals end of rate-hike cycle") down such that further rate increases are not required,” said J.P. Morgan economist Allan Monks. Financial markets pointed to an 95% chance of an increase in [Bank Rate](https://www.financedigest.com/central-banks-keep-hiking-rates-amid-banking-turmoil.html "Central banks keep hiking rates amid banking turmoil") next month, up from 90% early on Tuesday. There were also signs of unexpected economic strength in [public finance data that showed income and corporate tax revenues rising](https://www.financedigest.com/guess-what-public-sector-adoption-of-e-invoicing-on-the-rise.html "GUESS WHAT? PUBLIC SECTOR ADOPTION OF E-INVOICING ON THE RISE!") in January. Finance minister Jeremy Hunt is facing calls from within his Conservative Party to [cut taxes in his March 15 budget](https://www.financedigest.com/icrc-to-cut-some-1500-jobs-as-humanitarian-budgets-seen-sliding.html "ICRC to cut some 1,500 jobs as humanitarian budgets seen sliding") and from trade unions to raise pay for public service workers. But he stuck to his message about the need to tackle a debt mountain of almost 2.5 [trillion pounds](https://www.financedigest.com/how-britains-pension-scheme-hedge-became-a-trillion-pound-gamble.html "How Britain’s pension scheme hedge became a trillion pound gamble"), or almost 99% of economic output. The dominant services sector drove the improved reading in the PMI survey, which [financial data company S&P Global put down to recovering global demand and stability since](https://www.financedigest.com/biggest-uk-house-price-fall-recorded-since-financial-crisis.html "Biggest UK house price fall recorded since financial crisis") the market turmoil associated with the brief premiership of Liz Truss. Crucially for the BoE, the PMI’s [price indexes – a good guide of future inflation pressure – continued to fall](https://www.financedigest.com/buy-off-plan-to-beat-stalling-house-prices-and-falling-rental-yields-says-jean-liggett.html "“Buy off-plan to beat stalling house prices and falling rental yields” says Jean Liggett "), with businesses’ costs rising at the slowest pace since April 2021. While the PMI for the services sector rose to 53.3 in February from January’s 48.7, its highest since June last year, [factory activity continued to contract](https://www.financedigest.com/asias-factory-activity-contracts-despite-chinas-covid-reopening.html "Asia’s factory activity contracts despite China’s COVID reopening") albeit less severely, with the manufacturing PMI increasing to 49.2 from 47.0, close to 50, the no-change mark. A Confederation of British Industry survey published on Tuesday showed [falling output](https://www.financedigest.com/japans-factory-output-posts-biggest-fall-in-8-months-on-weak-autos-chips-sectors.html "Japan’s factory output posts biggest fall in 8 months on weak autos, chips sectors") and orders, and like the PMI, receding cost pressures too. Growing numbers of [companies in services](https://www.financedigest.com/italys-eni-sets-up-sustainable-transport-services-company.html "Italy’s Eni sets up sustainable transport services company") and manufacturing were more optimistic about their prospects. A Barclays survey of small and medium-sized [firms showed 41% were confident about the outlook](https://www.financedigest.com/sterling-holds-firm-after-uk-jobs-data-muddies-rate-outlook.html "Sterling holds firm after UK jobs data muddies rate outlook") – a nine-month high. (Reporting by Andy Bruce; Editing by Susan Fenton, Catherine Evans and Christina Fincher) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---