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UK economy ‘running on empty’ as activity slows

UK economic activity stalled in May, a closely-watched survey showed on Thursday, weighed down by a slowdown in manufacturing.
The S&P Global CIPS UK PMI Composite output index was 53.1 in June, unchanged on April’s 15-month low. Consensus had been for a fall to 52.4.

Within that, the Services PMI business Activity index was unchanged at 53.4, also ahead of consensus. But manufacturing output edged lower to 51.2, a 16-month low, from 51.6, while the manufacturing PMI fell from 54.6 to a 23-month low of 53.4, marginally below expectations.

Rising costs and concerns about the wider economic outlook also meant optimism continued to decline, leaving it at its lowest level for just over two years, while the new orders index fell to 50.8 – the lowest since February 2021.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The economy is starting to look like it is running on empty.

“Current business growth is being supported by orders placed in prior months, as companies report a near-stalling in demand. Manufacturers in particular are struggling with falling orders, especially for exports, and the service sector is already seeing signs of the recent growth support from pent-up pandemic demand move into reverse amid the rising cost of living.”

Williamson argued that the UK looked set for a “troubling combination of recession and elevated inflation as we move into the second half of the year”.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “The economic uncertainty brought about by war disruptions, the cost of living crisis and China’s zero-Covid policy have all dampened business optimism to its lowest point since the start of the pandemic.”

Martin Beck, chief economic advisor to the EY Item Club, said: “UK activity remains in the lower gear seen in May.

“The combination of high inflation and weakening activity is one that the Monetary Policy Committee has been looking at closely throughout 2022. Based on past form, June’s composite PMI is consistent with a level of activity where the MPC has typically had a bias towards cutting interest rates. But so far this year it has been clear that the MPC is far more concerned with fighting inflation that supporting activity.

“So, with inflationary pressures remaining strong, it looks likely that interest rates will rise again in August.”

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “We remain comfortable with our forecast for a drop in GDP in the second quarter, despite the persistence of the composite PMI in June above the 50 mark. [It] has been misleadingly upbeat lately. We suspect that survey participants are basing their responses on turnover, which has picked up due to the increase in prices, rather than volumes. In addition, the composite PMI excludes retail sales, which have been trending down, and government spending, which will continue to drop.”

Data for the flash survey were collected between 13 and 21 June. A reading above 50 indicates growth, while a reading below indicates contraction.

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