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A sharp slowdown in UK business activity raises a recession warning

A sharp slowdown in UK business activity raises a recession warning

 


People are walking in a shopping street in London, UK on December 24, 2021. REUTERS/Kevin Coombs

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S&P Global’s UK Flash PMI fell to 51.8 in May from 57.6 in April Index Worst than all forecasts, the lowest since February 2021 Soaring inflation pressures households and hurts consumer confidence CBI hits UK retail The company says its outlook is the most gloomy since November 2020

LONDON, May 24 (Reuters) – A growing pessimistic business survey on Tuesday showed that UK private sector momentum was much slower than expected this month, adding to concerns about a recession as inflationary pressures soared.

The Composite Purchasing Managers’ Index (PMI), S&P Global’s monthly service and manufacturing index, fell to 51.8 in May from 57.6 in April, the lowest level since February last year.

The preliminary figure was worse than all predictions in Reuters’ Economist polls that pointed to a drop to 57.0, the magnitude of the decline greater than any before COVID-19.

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Sterling fell sharply against the US dollar after the data and fell 0.7% to $1.2503 at 1030 GMT on the day.

“The collapse of the composite PMI in May is the clearest sign that demand is being shaken by extreme pressure on households’ real disposable income,” said Samuel Tombs, UK chief economist at Pantheon Macroeconomics.

Most surveys of UK business activity so far have been fairly robust despite record low consumer confidence after inflation hit a 40-year high of 9%. read more

Sales of UK retailers have remained at normal year-over-year levels after a major downturn in April, according to the Confederation of British Industry’s May survey of UK retailers, released on Tuesday.

However, the outlook for June was weaker and the company’s long-term outlook was the most optimistic since November 2020, when non-essential stores closed due to the pandemic. read more

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The latest data shows that the risk of a recession has increased as the Bank of England struggles to control inflation.”

Financial markets are still expecting the BoE to double interest rates from 1% today to at least 2% by the end of the year.

But Tombs expects the UK economy to contract by 0.5% over the three months to June, when an additional public holiday commemorating Queen Elizabeth’s 70th anniversary will backfire on existing growth and expect the BoE to raise rates just one more time. . year.

The recession was most severe in the services sector, with business optimism over the next 12 months falling to the lowest since May 2020 during the first coronavirus lockdown.

“Businesses are creating an increasingly cautious atmosphere among home and business customers regarding the cost of living crisis, Brexit, interest rate hikes, China’s lockdown and the Ukraine war,” Williamson said.

Reports of an increase in the costs businesses pay are more prevalent than ever since the services PMI began in 1996.

Williamson said there are some signs that cost pressures may be peaking, and businesses have reported customers resisting higher prices and associated decline in demand.

More than one in five British households said they were struggling to make a living, according to separate figures from market research firm Kantar on Tuesday. read more

The flash PMI for the manufacturing sector also fell to 54.6 in May, the lowest since January 2021 from 55.8 in April. New export orders fell at the fastest rate since May 2020. Many manufacturers cited Brexit trade friction as a major factor in the decline.

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Edited by Catherine Evans and Raissa Kasolowsky

Our Standard: The Thomson Reuters Trust Principle.

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2/ https://www.reuters.com/world/uk/sharp-slowdown-uk-businesses-rings-recession-alarm-pmi-2022-05-24/

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