Photo: Kumar Sriskandan/ Alamy
UK policymakers have been put on recession alert, as a closely watched measure of economic health showed Britain is in the grip of a Europe-wide slump in private sector activity.
In a sign that high interest rates are causing a sharp slowdown in growth and undermining inflation, the latest monthly Business Health Check showed weakness in the UK services and manufacturing sectors and the worst contraction since the Covid lockdown in early 2021. performance is shown.
Problems in Britain were mirrored in the eurozone, where activity fell to its lowest level since November 2020. Germany, the single currency’s largest economy, is being particularly affected by a drop in demand for its manufactured goods.
The US has so far put in a stronger performance than Europe but the world’s biggest economy is also showing signs of stress. Activity slowed to a near-constant level in August and was at its lowest level in six months.
Warnings of problems ahead were flagged by a series of purchasing managers’ surveys, which were seen as a reliable guide to future trends in the economy. The survey uses 50 as the cutoff point between growth and contraction.
The UK’s purchasing managers’ index (PMI), conducted by S&P and the Chartered Institute of Procurement and Supply, fell from 50.8 in July to 47.9 in August. Services sector activity fell to 48.7 from 51.5, while the manufacturing PMI fell to 42.5 from 45.3.
Jennifer McKeown, chief global economist at Capital Economics consultancy, said: “The flash PMIs for August support our view that the eurozone and the UK will slip into recession in the third quarter and mean the US is now growing hard.
“And with output prices still slowly easing, surveys strongly suggest we are at or near a peak in the cycle of monetary tightening.”
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The early August PMI survey suggests that inflation should ease further in the coming months, but also indicates that the case against inflation is rising in the face of a growing recession.” The fighting is coming at a heavy cost.” risk.
“A renewed contraction in the economy already looks inevitable, as the spring revival of the services sector continues to falter and falter, alongside a continuing severe downturn in manufacturing. The survey indicates a 0.2% decline in GDP in the third quarter so far.
Williamson said companies are feeling the impact of the UK cost of living crisis, low export demand, high interest rates and doubts about the economic outlook.
Companies were curtailing their ability to raise prices, and inflation was set to drop from 6.8% to 4% in the coming months.
“Meanwhile, a further decline in hiring in August indicates that the labor market is picking up, which should ease wage pressures. While there is a possibility of further hike in interest rates in September, the August PMI data will give rise to such speculations that the rates may peak soon.
The Eurozone’s PMI for overall business activity, conducted by the Hamburg Commercial Bank (HCB), fell from 48.6 in July to 47.0 in August. The services PMI fell to 48.3 from 50.9, while the manufacturing PMI rose slightly to 43.7 from 42.7.
HCB chief economist Cyrus de la Rubia said: “Unfortunately the Eurozone’s services sector is showing signs of matching the poor performance of manufacturing.
“Indeed, services companies reported a contraction in activity for the first time since late last year, while output in the manufacturing sector fell again.
“Considering our GDP PMI data, we conclude that the Eurozone will shrink by 0.2% in the third quarter.”
