LONDON – The survey conducted by S&P Global’s Composite Purchasing Managers’ Index (PMI) indicated signs of a slowdown in Britain’s economy this month. However, inflation pressures remained high. This survey was published a day after the Bank of England raised interest rates and expressed its readiness to take further action to regulate price growth.
In June, the preliminary reading of the PMI dropped to 52.8, a three-month low, compared to 54.0 in May. This decline was primarily due to the weakest growth in new orders since January, which adversely affected manufacturing sectors.
According to Chris Williamson, the chief business economist at S&P Global Market Intelligence, the survey suggests that the economy has lost momentum after a brief growth period in the spring. He further added that the economy is expected to weaken further in the coming months. “Most notably, consumer spending on services, which was a core growth driver in the spring, is now showing signs of faltering,” he said. This can be attributed to higher interest rates, strong inflation, and concerns about the future.
The preliminary survey revealed that the services sector recorded its slowest pace of growth in three months, while the manufacturing sector experienced its steepest contraction in six months. However, there was a notable exception with the strongest growth in hiring since September last year, resulting in higher wage growth and contributing to inflation pressures in the service sector, which is a particular concern for the Bank of England.
The Bank of England, in its attempt to tackle inflation, raised interest rates for the 13th consecutive time on Thursday, bringing the Bank Rate to 5 percent, a substantial increase from 0.1 percent at the end of 2021.
Williamson believes that these rate hikes will increase the likelihood of a recession later this year, which he views as collateral damage in the fight against inflation.
The PMI survey indicated that services firms have once again increased their prices this month, although not as steeply as in May. In contrast, manufacturers have reduced their prices for the first time in over seven years.
Companies in the manufacturing and services sectors have become slightly less optimistic about their future prospects, with confidence in future output falling to its lowest level since January.
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