UK economy slows as factories report slump in production

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The Corus steelworks is seen in Teesside, northern England, January 26, 2009. REUTERS/Nigel Roddis/File Photo

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  • UK composite PMI falls to lowest since February 2021
  • PMI shows marginal growth in UK, contraction in Eurozone
  • Price pressures easing but still elevated
  • CBI and PMI data point to a manufacturing recession

LONDON, Aug 23 (Reuters) – Britain’s private sector slowed in August as factory output slumped and the services sector as a whole expanded only modestly, adding to signs of a recession imminent, a closely watched investigation revealed on Tuesday.

However, inflationary pressure remained elevated and the looming recession is unlikely to prevent the Bank of England from raising interest rates again next month, economists said.

The composite flash estimate for the S&P Global/CIPS Purchasing Managers’ Index (PMI) fell to 50.9 in August from 52.1 in July, its lowest since February 2021 and close to the 50 level that separates contraction growth.

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Economists polled by Reuters had expected the index to fall less sharply to 51.1.

While activity in the services sector almost maintained the pace of July, the manufacturing component fell to 46.0 in August from 52.1 in July, its lowest since May 2020 at the height of the pandemic. of COVID-19 and below all forecasts from a Reuters poll.

Separate figures from the Confederation of British Industry, also released on Tuesday, showed the first drop in factory output since February 2021 and the weakest order book since April this year. Read more

“Dwindling customer demand amid a weaker economic outlook and labor and input shortages would have hit goods producers hard,” said Annabel Fiddes, economist at S&P Global.

Britain’s composite PMI, covering manufacturing and services, outpaced that of the euro zone, which slipped further into recession territory, rising energy costs – largely caused by Russia’s invasion of Ukraine – having weighed on consumer spending. Read more

The BoE has warned that Britain is also at risk of sliding into a recession at the end of 2022, which will last until 2024, as energy bills are expected to push consumer price inflation above 13% in october.

Citi economists predicted on Monday that inflation would exceed 18% in January, when regulated household energy prices are expected to rise again. Read more

HSBC said Tuesday’s figures sent mixed messages to the BoE about its decision next month whether to raise interest rates by another half a percentage point, after doing so for the first time since 1995 at the beginning of the month.

“The fall in manufacturing is ammunition for doves, as are price trends,” said HSBC economist Elizabeth Martins. “But strong demand, employment and staffing costs in the sector which accounts for 80% of GDP – services – also appear hawkish.”

Some signs of easing inflationary pressures were observed in other sectors of the economy, reflecting a fall in the prices of certain commodities such as metals.

Manufacturers’ input costs rose at the slowest pace since November 2020, although a still-tight labor market pushed up costs for service businesses slightly. Overall, companies raised prices the least for consumers in seven months.

“Companies often mentioned that intense market competition and efforts to attract new work had limited overall pricing power,” S&P Global said.

However, the CBI figures showed a recovery in manufacturers’ price intentions as they braced for higher energy costs.

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Reporting by David Milliken; Editing by Susan Fenton and Tomasz Janowski

Our standards: The Thomson Reuters Trust Principles.

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