Liz Truss will become the UK’s next prime minister as the economy teeters on the brink of recession, figures show that private sector activity fell last month as businesses battle soaring costs .
The latest snapshot from S&P Global and the Chartered Institute of Procurement and Supply (Cips) revealed a “severe and accelerating” decline in manufacturing output in August, alongside weaker activity in the UK’s dominant services sector.
The monthly business survey, which is closely watched by the government and the Bank of England for early warning signs of the economy, revealed growing concerns about soaring inflation and a sharp reduction business confidence.
According to the S&P Global and Cips Monthly Health Check, cost pressures facing businesses remained at extremely high levels, linked to rising energy and fuel prices amid the war on Russia in Ukraine further increases costs in the wholesale market. Unlike households, businesses do not benefit from an energy price cap.
“The new Prime Minister will be dealing with an economy facing a heightened risk of recession,” said Chris Williamson, chief economist at S&P Global Market Intelligence, as Britain’s economy faces a “deteriorating labor market and persistent high pressures on prices”. linked to soaring energy prices.
The monthly S&P/Cips Purchasing Managers’ Index fell to 49.6 in August from 52.1 in July. Any value above 50 suggests growth in private sector activity.
Meanwhile, separate figures from the retail sector showed slowing sales growth last month as shoppers tightened their belts.
The British Retail Consortium (BRC) said total sales rose at an annual rate of 1% in August, compared to 2.3% in July, thanks to weak clothing sales at the end of summer events and the reduction by consumers in the purchase of white goods and other big ticket items. elements.
Helen Dickinson, chief executive of the BRC, said urgent support for households and businesses was needed from the new prime minister.
“With some inflation forecasts hitting 20% in the new year, households and retailers are bracing for a particularly tough time ahead,” she said.
Warm weather helped encourage stronger spending growth on some items last month, including suntan lotion, while sales of food and drink for summer barbecues rose 5% from last month. ‘last year.
However, economists said storm clouds were looming for retailers bracing for a drop in demand from struggling households.
Don Williams, a retail partner at accounting firm KPMG, said: “Worryingly, August data revealed a significant drop in clothing sales – the category that has been the best performer this year, which could signal the start of buyers withdrawing from non-essential spending.
The figures come as some economists suggested Britain’s economy slipped into recession this summer as households tightened their belts amid the cost of living crisis.
The Bank of England expects inflation to peak above 13%, the highest level since the early 1980s, and predicts a long recession from the last quarter of the year.
Goldman Sachs economists said last week that inflation could peak above 22%, near the post-war record set in 1975, if current wholesale energy prices continue in the new year.
In her acceptance speech after beating Rishi Sunak in the Tory leadership race, Truss pledged to “put forward a bold plan to cut taxes and grow the economy” and also “manage the bills.” ‘people’s energy’ ahead of a tough winter for households and businesses.
Economists said challenges such as skyrocketing inflation, Brexit and severe staff shortages were weighing on growth. While households have been most affected by their standard of living since the 1950s, the S&P and Cips snapshot reflects the collapse in demand for consumer services such as restaurants, hotels, travel and recreational activities .
John Glen, the chief economist at Cips, said: “Port disruptions, Brexit red tape and shortages continue to play a part in inflation, the sector is relatively helpless in the face of steadily rising energy bills. increase.
“Services firms will have their eyes on the new Prime Minister this week as they hope for a political solution to soaring costs.”