Britain’s economy is starting to ‘run on empty’ as post-pandemic order books dry up and the highest inflation in 40 years hurts confidence, the latest private sector snapshot showed.
Flash estimates of the economy’s performance in June showed business optimism was at its lowest since the early months of the Covid pandemic in spring 2020 and the biggest drop in new order volumes for a year.
The monthly survey of purchasing managers by S&P and the Chartered Institute of Procurement and Supply (Cips) indicates that overall business activity in the services and manufacturing sectors remained unchanged from the 15-month low of 53.1 reached in May.
A reading above 50 suggests that private sector activity is expanding while a reading below 50 indicates contraction.
Labor demand remained strong despite weaker growth in new businesses, with job creation the highest in three months.
Chris Williamson, chief economist at S&P Global Market Intelligence, said: “The economy is starting to look like it’s running on empty. The current growth in activity is supported by orders placed in previous months, with companies reporting a virtual stall in demand.
“Manufacturers in particular are grappling with falling orders, especially for exports, and the services sector is already seeing signs of the recent growth spurt due to pent-up pandemic demand reversing amid the rise in the Cost of life.”
Meanwhile, the CBI’s Monthly High Street Spending Survey has shown that the Queen’s Platinum Jubilee celebrations have failed to boost the fortunes of struggling UK retailers as mounting pressures on the cost of living has dampened purchasing power. Retail sales fell for a third month in June and retailers were anticipating another tough month in July.
Although the employers’ organization’s retail trades survey does not include spending in bars and restaurants over the bank holiday weekend, separate snapshots of the economy provided further evidence of the UK cost of living crisis.
The CBI’s retail health check followed comments by the organization’s outgoing chairman – Lord Karan Bilimoria – in The Daily Telegraph in which he said the UK was “definitely” heading into recession.
Ben Jones, a CBI economist, said: “Retail volumes are struggling as high inflation eats away at consumer budgets. Compression in household incomes appears to have offset any pick-up in activity following the extension of the Platinum Jubilee holiday earlier this month.
“There are also clearer signs that a slowdown in consumer spending is starting to ripple through the broader retail sector, with wholesalers seeing a 14-month period of robust sales growth come to a screeching halt this month. -this.”
The annual inflation rate rose to 9.1% in May, and flash estimates of the economy’s performance in June by S&P/Cips showed that business optimism was at its lowest since the first few months. of the pandemic in spring 2020, coupled with the largest drop in new order volumes for a year.
A similar PMI for the euro zone showed a sharper slowdown than in the UK, with the composite measure for services and manufacturing falling from 54.8 to 51.9 in June. Williamson said outside of the months affected by the pandemic-induced lockdowns, it was the biggest drop since the 2008 global financial crisis.
He said business confidence in the UK had now fallen to a level which in the past usually signaled an impending recession. “The weak general flow of economic data so far in the second quarter points to a decline in GDP which, according to forward-looking PMI numbers, will accelerate in the third quarter.”