UK output grows; inflation stronger

British firms reported an unexpected increase in output in November and evidence of stronger inflation, signs of strength in the economy that may concern the Bank of England. The pound rose.

S&P Global said its purchasing managers' index edged up to 50.1, the highest reading in four months and above the threshold level of 50 dividing growth and contraction. It was up from 48.7 in October, a figure economists had expected would be repeated. The data indicate resilience in the economy that may ward off the risk of a recession in the coming months. It also may focus attention at the central bank on the risk that the strength of demand will feed a wage-price spiral, something policy makers have worked for two years to choke off.

The pound extended gains after the release, jumping as much as 0.6% to $1.2564, the highest since Sept. 6. Gilt yields also rose, with the 10-year yield up six basis points to 4.21%. Sterling is on track to post its best monthly gain against the greenback in a year, boosted by a broadly weaker dollar.


S&P's report released on Thursday found "renewed signs of sticky inflation in November." Cost pressures rose for the first time in four months. This was "overwhelmingly linked to higher staff costs," the research group said. "The UK economy found its feet again," said Tim Moore, economics director at S&P Global Market Intelligence.

"Overall input cost pressures picked up for the first time in four months. Service-sector inflation was a key area of concern as businesses once again reported the need to pass on higher staff costs to customers."