UK Private Sector Logs Steady Growth In June

The UK private sector logged a better-than-expected growth in June but that was unchanged from the 15-month low seen in May, flash survey results from S&P Global showed on Thursday.

The Chartered Institute of Procurement & Supply flash composite output index held steady at 53.1 in June, while the reading was expected to fall to 52.6.

The score remained above the neutral 50.0 for the sixteenth consecutive month, suggesting expansion in the private sector. However, the reading was the joint-lowest seen over this period.

By sector, a sustained recovery in events and other areas of face-to-face consumer spending helped to boost business activity in the service economy.

The services Purchasing Managers’ Index remained unchanged at 53.4 in June. The reading was forecast to fall to 53.0.

Meanwhile, manufacturing production growth eased further to its lowest since February 2021 due to weaker demand and supply chain disruptions.

The manufacturing PMI dropped to a 23-month low of 53.4 from 54.6 in the previous month. The index remained below the economists’ forecast of 53.7.

The survey showed that new order volumes across the private sector dropped to 50.8 in June from 53.8 in May. Firms citied hesitancy among clients and squeezed budgets due to rising inflation as key factors holding back demand.

Nonetheless, there was a strong increase in staffing numbers driven by hiring in the service sector.

At composite level, input prices increased at a slightly slower pace than in May, but the rate of inflation was still the second-fastest since the index began in January 1998.

Average prices charged by firms increased in June. Although the rate of output charge inflation eased to its lowest since February, the rate was higher than at any other time in the past two decades.

The business expectations index fell by 4.6 points in June, which was the largest monthly decline since the start of the pandemic. Optimism among both manufacturers and service providers reached the weakest since May 2020.

Chris Williamson, chief business economist at S&P Global Market Intelligence said, the weakness of the broad flow of economic data so far in the second quarter points to a drop in GDP which the forward-looking PMI numbers suggest will gather momentum in the third quarter.

Taken together with signs that economic activity is slowing rather than sinking, the PMI survey bolsters the case for the Bank of England to deliver further interest rate hikes over the coming months, Capital Economics economist Nicholas Farr said.

It may continue to raise rates in steps of 25 basis points, rather than accelerating the pace of tightening with bigger rate hikes like the Fed, the economist added.

Elsewhere, survey results from the Confederation of British Industry showed that retailers expect sales to fall again in July amid cost of living crisis. A net 2 percent of retailers expected sales volume to drop next month.

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