Cost of Living: UK economy moves closer to stagnation with factory slump | Business newsletter

The latest data showed UK private-sector growth came close to stagnation as it fell to an 18-month low, dragging down factory output.

The S&P Global/CIPS Purchasing Managers’ Index (PMI) composite estimate fell to 50.9 in August from 52.1 in July, its lowest level since February 2021 and near 50. prevent growth from shrinking.

Economists had expected the index to drop less to 51.1.

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Annabel Fiddes, deputy chief economist at S&P Global Market Intelligence, said: “The UK private sector moved closer to stagnation in August, as the slight growth of activity in the services sector only compensate for the deepening decline of manufacturers.

“Falling customer demand amid a weaker economic outlook, and shortages of both staff and inputs, is reported to have hit commodity producers, with companies The company registered the fastest decline in output and new jobs since May 2020.”

The overall slowdown in growth was largely due to a sharper drop in manufacturing output from UK factories.

The manufacturing sector reported monthly output of 42.4, representing the steepest decline in more than two years.

Companies reported “decreased customer demand, delayed input material supply and labor shortages” for the month.

Separate figures from the Confederation of British Industry, also released on Tuesday, showed factory output falling for the first time since February 2021 and the weakest orders since April of that year.

Meanwhile, the larger service sector only experienced modest expansion, with 52.5 for August.

John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS), said: “Services have had a better month, but only significantly when new orders are maintained and customers are satisfied. Customers remain optimistic that they will continue to purchase throughout the year.

“However, this can be reversed fairly quickly.

“There are many concerns that keep private sector business owners up at night, such as supply chain disruptions due to war, the highest inflation in the UK in nearly 50 years, the impact of higher interest rates and the current now there are port disruptions in the UK. a few.”

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However, companies signal the rate of cost inflation will fall further.

Manufacturers reported their cost inflation rates fell to their lowest level since November 2020 as commodities like metals fell in value, although a continued tightening labor market pushed up spending. The fees of service companies go up a bit.

The UK composite PMI, which includes the manufacturing and services sectors, has outperformed it for the euro area, which has fallen deeper into recession territory due to high energy costs. more – caused in large part by Russia’s invasion of Ukraine – has squeezed consumer spending.

The Bank of England warned that Britain was also capable of fall into recession the end of 2022 will extend to 2024 as energy bills are expected to push consumer price inflation above 13% in October, having reached 40-year high of 10.1% in July.

Economists at Citi forecast Monday that inflation will exceeded 18% in January when the limit of energy prices will increase again.

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HSBC said the latest figures sent mixed messages to the central bank about its decision next month on whether to raise rates by half a percentage point, after it did so. for the first time since 1995 earlier this month.

HSBC economist Elizabeth Martins said: “The drop in the manufacturing sector is the source of the pigeons’ supply, as is the price trend.

“However, strong demand, employment and staff costs in the sector that accounts for 80% of GDP – services – also look sloppy.”