Britain's economy, which had seemed certain to fall into recession in early 2023, has shown some unexpected signs of recovery, raising questions about whether the Bank of England really is about to pause its run of interest rate increases.
Below is a summary of recent gauges of the economy and how investors have increased their bets on future BoE rate hikes.The preliminary reading of the S&P Global/CIPS UK Composite Purchasing Managers' Index beat all forecasts in a Reuters poll of economists, jumping to 53.0 in February from 48.5 in January, above the 50 threshold for growth for the first time since July.
"The report poses a clear challenge to the BoE's central view that a long recession and rise in unemployment will bring inflation down such that further rate increases are not required," said JP Morgan economist Allan Monks.Britons turned more upbeat about their personal finances and the outlook for the economy this month, according to market research firm GfK's gauge of consumer confidence. It rose by the most in almost two years in February.
The British central bank signalled on Feb. 2 it was getting close to slowing or pausing its run of interest rate increases after some measures of inflation pressure eased and the economy looked set to go into recession. Since then, however, the improvement in the economic data has prompted investors to increase their bets on the Bank Rate, which currently stands at 4.0%, rising to 4.25% next month and 4.5% in May, with a one in three chance of hitting 5% in August.Despite the improvement signs, Britain lags its peers in terms of its recovery from the pandemic. Data to the end of 2022 shows Britain is the only G7 economy yet to recover its level of the end of 2019.
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