UK Private Sector Logs Weakest Growth In 6 Months

The UK private sector expanded at the slowest pace in six months in July as rising interest rates, high inflation and uncertain economic outlook pose strong headwinds to business activity.

The flash composite output index dropped to a six-month low of 50.7 from 52.8 in the previous month, survey results from S&P Global and the Chartered Institute of Procurement & Supply showed Monday.

Although the score has remained above the crucial 50.0 no-change threshold in each of the past six months, the reading was the weakest in the current sequence of expansion.

“The UK economy has come close to stalling in July which, combined with gloomy forward-looking indicators, reignites recession worries,” S&P Global Market Intelligence Chief Business Economist Chris Williamson said.

“The biggest concern is increasingly not if the UK economy will enter recession but for how long,” CIPS Chief Economist John Glen said.

Respondents of the survey cited flat-lining new orders and sharply falling backlogs of work as reasons for the overall slowdown in business activity.

Growth in the services economy moderated for the third straight month on weak residential property market conditions and cutbacks to discretionary spending.

At 51.5, the services business activity index also hit a six-month low in July, down from 53.7 in June.

The manufacturing PMI dropped to a 38-month low of 45.0 from 46.5 in June. Lower demand and overstocking among clients weighed on manufacturing production, the survey showed.

Ending a five-month period of expansion, new business volumes stalled in July. Marginal increase in the service economy was offset by falling manufacturing sales. New export orders fell the most since November 2022.

There was another fall in unfinished work as softer demand, improving supply conditions and greater business capacity lowered backlogs. Although the pace of job creation eased since June, employment grew in each of the past four months.

Further, the survey showed a sharp increase in average cost burdens in July. But the rate of inflation was the weakest since February 2021.

Input costs increased in the services economy due to strong wage pressures, while goods producers commented on lower freight rates as the reason for the fall in purchase prices.

Averages prices charged increased in July due to the pass through of higher staff wages in the service economy. By contrast, factory gate prices fell slightly in July.

Business activity expectations hit the weakest since December 2022 mostly due to the downturn in business optimism across the service economy.

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