Sharp slowdown in UK business activity sounds recession alarm

People walk on a shopping street in London, Britain December 24, 2021. REUTERS/Kevin Coombs

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LONDON, May 24 (Reuters) – Britain’s private sector momentum has slowed far more than expected this month, adding to recession concerns as inflationary pressures mounted, according to a business survey on Tuesday. which showed growing pessimism.

S&P Global’s Flash Composite Purchasing Managers’ Index (PMI), a monthly indicator of services and manufacturing industries, fell to 51.8 in May from 57.6 in April, its lowest level since February of the year. ‘last year.

The preliminary reading was worse than any forecast from a poll of Reuters economists, which had pointed to a drop to 57.0.

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The pound fell sharply against the US dollar after the data, and was down 0.9% on the day at $1.2480 at 0855 GMT, as prices of short-term UK government bonds jumped .

“The collapse of the composite PMI in May is the clearest sign yet that demand is weakening in response to the intense pressure on real household disposable income,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

So far, most surveys of UK business activity have been quite robust, despite record high consumer confidence after inflation hit a 40-year high of 9%. Read more

“The latest data indicates an increased risk of the economy sliding into recession as the Bank of England struggles to control inflation,” said Chris Williamson, chief economist at S&P Global Market Intelligence.

Financial markets still expect the BoE to double interest rates to at least 2% by the end of the year, from 1% currently.

The slowdown was most acute in the services sector, where business optimism for the next 12 months fell to its lowest since May 2020, during the first coronavirus lockdown.

“Companies cite increasingly cautious moods among households and business customers, linked to the cost of living crisis, Brexit, rising interest rates, lockdowns in China and the war in Ukraine,” Williamson said.

Reports of rising costs paid by businesses were more widespread than at any time since the services PMI began in 1996.

Williamson said there were signs that cost pressures could be peaking, and companies reported customer resistance to higher prices and a related reduction in demand.

The flash PMI for the manufacturing sector also fell in May to its lowest level since January 2021 at 54.6, from 55.8 in April. New export orders fell at the fastest pace since May 2020. A number of manufacturers cited Brexit-related trade frictions as the main reason for the decline.

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Additional reporting by David Milliken; Editing by Catherine Evans

Our standards: The Thomson Reuters Trust Principles.

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