British private-sector economic activity fell at its fastest rate in two years this month, a survey showed on Tuesday, as businesses blamed higher Bank of England interest rates, strikes and weak consumer demand for the slowdown.
The S&P Global/CIPS flash composite purchasing managers’ index (PMI) dropped to 47.8 from 49.0 last month, at the bottom end of economists’ forecasts in a Reuters poll and the lowest since January 2021.
Readings below 50 indicate falling output.
Photo: EPA-EFE
The fall contrasted with a slight rise in business activity in the eurozone.
“Weaker-than-expected PMI numbers in January underscore the risk of the UK slipping into recession,” S&P Global chief business economist Chris Williamson said.
“Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year,” he added.
The British economy grew in November last year, official data published earlier this month showed, reducing the chances of two consecutive quarters of falling output — the widely used definition of recession in Europe — in the second half of last year.
However, a widely expected fall in output this year would weigh on the central bank’s Monetary Policy Committee (MPC) as it considers how much further to raise interest rates in a meeting next week.
Financial markets expect the central bank to raise rates to 4 percent from 3.5 percent to tackle double-digit percentage inflation, and to a peak of about 4.5 percent later this year.
British Chancellor of the Exchequer Jeremy Hunt is under pressure to announce pro-growth measures in a March 15 budget statement, but data published on Tuesday showed an unexpectedly large jump in borrowing last month, limiting his options.
Economists said the British economy was losing momentum while its peers in the EU seemed to be gathering pace.
“The silver lining to S&P’s survey, however, is that it strengthens the case for the MPC to stop hiking the bank rate soon,” Pantheon Macroeconomics Ltd economist Gabriella Dickens said.
Britain is also in the midst of a wave of industrial action, as rail workers, nurses, ambulance drivers and teachers seek pay rises that keep up with inflation.
Tuesday’s PMI data showed that prices charged by businesses rose at the slowest rate since August 2021, although the increase was still steep by historic standards.
Costs rose at the slowest pace since April 2021, as energy prices fell, although wage increases remained significant, while optimism about the year ahead reached an eight-month high.
Businesses cut fewer jobs, in contrast to the rapid hiring through much of 2021 and last year.
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