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Financial watchdog: UK economy 'running on empty' as recession signals mount

Workers walk towards Tower Bridge in London, the UK, September 15, 2021. (Photo by Reuters)

The UK economy is showing signs of stalling, as high inflation threatens a recession across the country, an industry watchdog survey has revealed.

In its survey findings published on Thursday, the S&P Global’s Purchasing Manager’s Index (PMI) showed that UK firms and factories have been hit by a slowdown in new orders, as the companies raised pay and passed higher costs on to clients.

The PMI’s preliminary composite index held at 53.1 in June, despite the median forecast of 52.6 in a Reuters poll of economists from May.

“The economy is starting to look like it is running on empty,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.

“Business confidence has now slumped to a level which has in the past typically signaled an imminent recession,” he said, adding that the economy is set to show a fall in output in the second quarter which could deepen in the third quarter.

In addition, UK private sector firms say demand has been hit by purchase-hesitancy and squeezed budgets due to high inflation.

Samuel Tombs at Pantheon Macroeconomics said that due to an additional public holiday across the country, the economy was expected to shrink even further in the April-June period.

“We still are content with our forecast for a 0.7% quarter-on-quarter decline in GDP in Q2 and only a partial recovery in Q3,” he said.

The PMI’s business expectations index fell by 4.6 points in June, the greatest monthly decline since the start of the pandemic.

Meanwhile, Britons are paying higher living costs and fuel prices as national inflation climbs to 9.1 percent, as the highest record in the past forty years. The Bank of England (BoE) is worried that the recent jump in inflation might turn into a permanent problem for the British economy.

Last month, soaring food prices, particularly bread, cereal, and meat, helped drive the latest increase in the cost of living in the UK.

Furthermore, rising inflation-linked debt interest costs have pushed the public finances deeper into the red than expected in May. 

According to S&P Global’s figures, there are intense staff shortages and the pay levels have risen.

Last week, the BoE drew a gloomy picture for the future, warning that worse is yet to come as the current inflation is likely to remain above nine percent over the coming months before climbing to 11 percent in October when regulated household energy bills are due to soar again.


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