UK Private Sector Growth At 17-Month Low

The UK private sector activity expanded at the weakest pace in nearly one-and-a-half years in July, primarily due to weaker demand conditions and ongoing capacity constraints, flash survey results from S&P Global showed on Friday.

The Chartered Institute of Procurement & Supply flash composite output index dropped to 52.8 in July from 53.7 in June. The index was forecast to fall to 52.5.

However, a reading above 50 suggests expansion in the sector.

The private sector activity grew for the seventeenth successive month in July, but the pace of expansion was the slowest over this period.

The PMI is now at a level consistent with just 0.2 percent GDP growth, Chris Williamson, chief business economist at S&P Global Market Intelligence said. Forward-looking indicators suggest worse is to come.

By sector, manufacturing output contracted for the first time since May 2020, due to lower new orders amid subdued client confidence and weaker global economic conditions.

The manufacturing Purchasing Managers’ Index dropped to a 25-month low of 52.2 from 52.8 in the previous month. Nonetheless, the score remained below the economists’ forecast of 52.0.

At the same time, the expansion in the service economy was strong at the start of the third quarter despite easing to a 17-month low.

The services PMI dropped to 53.3 in July from 54.3 in June. The reading was forecast to fall to 53.0.

There was only a marginal increase in new orders across the UK private sector in July, which was mainly driven by a sustained increase in new business in the service sector.

On the other hand, manufacturing orders fell for the first time in one-and-a-half years in July. As a result, backlogs of work fell at the steepest pace since June 2020.

On a positive note at composite level, input price inflation eased sharply to a 10-month low in July, caused by lower commodity prices and the stabilization in fuel costs.

Looking ahead, the expectations index improved from a 25-month low in June, as the service economy showed stronger optimism, while manufacturing indicated a weaker outlook, suggesting that private sector firms remain cautions about future business prospects.

Despite signs of reduced input cost pressure and weaker growth in the latest UK PMIs, the Bank of England is still narrowly more likely to follow through with its first 50 basis point rate hike at the August meeting, an ING economist James Smith said.

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