The number of UK sectors reporting output growth more than doubled in December, according to the Bank of Scotland UK Sector Tracker.
Seven of the 14 sectors monitored reported output growth (versus three in November) – the highest number since June 2022. However, overall UK economic activity saw a slight decline (49 vs. 48.2 in November).
A reading above 50 on the tracker indicates expansion, while a reading below that indicates contraction.
Software services firms (56.8 vs. 47.5 in November) and automotive manufacturers (53.1 vs. 38.0 in November) posted the fastest rises in activity. The tourism and recreation sector (50.2 against 44.6 in the previous month) - which includes pubs, hotels and restaurants - also saw output grow, supported by the World Cup.
December’s data presented positive signs of business’ inflationary pressures easing, which in turn could feed through to a slowdown in the increase in prices charged to consumers, according to Bank of Scotland.
The report found that 11 of 14 sectors in December reported slower input cost inflation month-on-month – the highest number since July 2022. The chemicals sector posted the largest reduction in cost inflation (down 9.6 points month on month), while there were also significant declines for automobiles and auto parts manufacturing (-6.9), and food and drink manufacturing (-6.8).
Overall, energy, material and logistics cost pressures weakened to 11, 20 and 25-month lows, respectively. By contrast, salary pressures remained close to record-high levels (3.87 times the long-term average), amid continued competition for workers.
However, across the economy, demand - as measured by new orders - continued to contract in December to 48, although at the slowest pace since September 2022 (48.6).
Weaker demand was attributed to the high inflation environment, with the number of firms linking poorer sales to price pressures hitting a record 18.8 times the long-term average, up from 15.3 in November.
Jeavon Lolay, head of economics at Lloyds Bank Corporate and Institutional Banking, said: “While the economy held up better than expected in recent months, the impact of temporary boosts such as the World Cup and first Covid-19 restriction-free Christmas for three years is evident.
“The mixed performance across UK sectors is likely to remain a rolling theme in 2023 as the strains from rising prices and higher interest rates impact both households and firms disproportionately.
“Still, further evidence of a broad softening of inflationary headwinds is welcome, as in large part this reflects the continuing normalisation of supply chain conditions for many sectors.”
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