UK composite PMI surges unexpectedly in February
Sterling and gilt yields rise on back of PMI
Price pressures show further easing
Manufacturing contracts again, but pace of decline cools

LONDON, Feb 21 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 SP GlobalCIPS UK Composite Purchasing Managers39; 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 of more than 20 economists, which had pointed to a reading of 49.0.

Sterling jumped against the dollar 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 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 BoE39;s central view that a long recession and rise in unemployment will bring inflation 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…