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Rising Interest Rates And Inflation Threaten UK Manufacturing

Higher interest rates, strong inflation and pessimistic expectations for growth are weighing down businesses across the UK’s services and manufacturing sectors, according to the latest gloomy report on the country’s flagging economy.

This month’s data from the S&P Global’s Composite Purchasing Managers’ Index (PMI) indicates the UK is in the challenging position of historically elevated interest rates amid signs of an economic slowdown.

The index surveys businesses in the services and manufacturing sectors – and is considered by market analysts to be a key economic indicator.

It revealed that the UK’s services sector grew at its slowest pace in three months while the manufacturing sector contracted by the most in six months.

This caused the index to plummet to a three-month low of 52.8 in June – down from 54.0 in May – in the latest preliminary reading.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the survey indicated the economy had lost momentum after a brief growth spurt in the spring.

It now looked set to weaken further in the months ahead.

“Most notably, consumer spending on services, which was a core growth driver in the spring, is now showing signs of faltering,” he said.

Hiring was one of the few spots of light in survey, with the strongest since September last year.

However, this was a double-edged sword, as it also contributed to higher wage growth – feeding into inflation pressures in the service sector.

This a huge concern for the Bank of England which is expected to continue to raise borrowing costs as it tries to tackle inflation which held at 8.7 percent in May.

Such action sharpens the likelihood of a recession, which Williamson described to be “increasingly inevitable” as “collateral damage in the fight against inflation”

By CityAM

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