More UK sectors see higher output growth in February

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More UK sectors see higher output growth in February

More UK sectors reported an increase in output than any time in the past 10 months in February, as stronger demand and weaker cost inflation drove activity, according to the Lloyds Bank UK Sector Tracker.

The output of 11 of the 14 sectors tracked by the tracker increased in February compared to 6 in January, the highest number since April 2022. A reading above 50.0 on the Tracker indicates expansion, while a reading below 50.0 indicates contraction.

In January, technology equipment manufacturers posted the fastest output growth 63.6 compared to 48.4 due to stronger new orders, improved capacity and fewer semiconductor shortages, according to surveyed firms.

There were increasing numbers of new orders that supported output growth across sectors. The number of businesses linking lower orders to higher prices almost halved month-on-month average in February compared to 8.0 times in January. Businesses own cost inflation slowed in February. 12 of the 14 sectors monitored reported a slower pace of cost inflation than the month before vs. 10 in January due to falls in materials and energy costs.

In February, metals and mining firms saw the largest decline in input cost inflation 51.0 vs. 69.0 in January, followed by healthcare businesses 67.6 vs. 86.7 transportation 67.9 vs. 69.2 and food and drink manufacturing 60.3 vs. 61.3 sectors.

During February, businesses in the UK increased their headcounts for the first time in three months. Reports from firms of staff shortages rose despite the pick-up in headcount. In February the number of businesses commenting on backlogs of work due to labour shortages was an eight-month high 4.64 times the long-run average compared to 4.19 in January Jeavon Lolay, Head of Economics and Market Insight at Lloyds Bank Corporate Institutional Banking, said that February s data shows the economy's relative robustness and gives some reasons for optimism for the year ahead. While inflationary pressures are still acute and households are cautious with spending, a healthy labour market is helping underpin confidence and demand.

It will play a crucial role in inflation's future trajectory. A persistently tight labour market could maintain wage inflation, or even accelerate it. Its prospects will be a key part of the Bank of England rationale as to whether it will hike interest rates on Thursday or not. Scott Barton, Managing Director, Lloyds Bank Corporate Institutional Banking, said management teams will need to shift their attention to building capacity as demand strengthens. The timing and structuring of investment flows will be a critical aspect of this, as will be staffing. The impact will be on available working capital. With strategic planning and prudent financial management businesses can position themselves for sustainable growth.