By Ian McConnell
RECESSION fears were fuelled yesterday by a key survey showing growth of the UK private sector economy has slowed sharply in May to its weakest pace in 15 months.
The slowdown was greater than anything seen in a single month prior to the pandemic, with escalating inflationary pressures and heightened geopolitical uncertainty flagged as constraints on consumer demand.
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The seasonally adjusted, flash UK composite output index for May, published by the Chartered Institute of Procurement & Supply and S&P Global, came in at a 15-month low of 51.8, close to the level of 50 deemed to separate expansion from contraction. This reading was lower than all forecasts in a poll by Reuters, which had signalled an expectation among economists that the index would come in at 57. The April composite output index reading was 58.2.
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CIPS and S&P Global said: “The month-on-month loss of momentum in May (-6.4 index points) was the fourth-largest on record and exceeded anything seen prior to the pandemic.”
The flash UK services business activity index has also tumbled to a 15-month low of 51.8 in May. This is down from 58.9 in April.
Duncan Brock, group director at CIPS, said: “The services sector fared worst with business expectations falling by the most since March 2020 when the pandemic first hit. Even the relative buoyancy in orders for travel and hospitality was not enough to rescue service providers from the sinking feeling that recession is knocking on the door. The fear is that the squeeze on household incomes could potentially starve the sector of further bookings as rising costs in energy, food and fuel dominate consumer thinking.”
Annual UK consumer prices index inflation hit 9% in April, the highest since 1982 and up from 7% in March.
The flash UK manufacturing output index for May is at a two-month low of 51.8. The manufacturing output index was at 54.3 in April.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come. Meanwhile, the inflation picture has worsened as the rate of increase of companies’ costs hit yet another all-time high.
“The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels. The tailwind from the reopening of the economy has faded, having been overcome by headwinds of soaring prices, supply delays, labour shortages and increasingly gloomy prospects. Companies cite increasingly cautious moods among households and business customers, linked to the cost-of-living crisis, Brexit, rising interest rates, China’s lockdowns and the war in Ukraine.”
He added: “There are some signs that the rate of inflation could soon peak, with companies reporting price resistance from customers, and it is likely that the slowing in demand will help pull prices down in coming months. However, the latest data indicate a heightened risk of the economy falling into recession as the Bank of England fights to control inflation.”
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