UK economic recovery at risk from rising inflation and waning business confidence

Britain’s recovery from the Covid-19 pandemic is being put at risk by the escalating price pressures and blow to business confidence caused by Russia’s invasion of Ukraine, the latest snapshot of the economy has shown.

The flash estimate of activity from S&P Global and the chartered institute of procurement and supply (CIPS) found the UK’s service sector growing rapidly but optimism about the future at its weakest in almost 18 months.

Both the service and manufacturing sectors expanded in March, according to the survey of purchasing managers, but while the former put in its strongest performance for nine months, factories had their toughest time since the lockdown of early 2021.

S&P Global and the CIPS said its measure of service sector activity rose from 60.5 to 61.0 in March, while the manufacturing PMI dropped from 58.0 to 55.5. Any reading above 50 suggests the sector is expanding.

Chris Williamson, chief business economist at S&P Global said: “The UK PMI surveys indicated a sustained robust pace of expansion in March as the further reopening of the economy from Covid-19 containment measures helped offset headwinds from the Ukraine war, Brexit and rising prices. However, the outlook darkened as concerns over Russia’s invasion exacerbated existing worries over soaring prices, supply chains and slowing economic growth.

“Business expectations are now at their lowest for almost one and a half years, pointing to a marked slowing in the pace of economic growth in coming months.

“Meanwhile, prices pressures have spiked higher due to increased energy and commodity prices resulting from the invasion. With March seeing by far the largest rise in selling prices for goods and services ever recorded by the survey, consumer price inflation is set to rise further in the months ahead.

In the wake of official figures this week showing consumer price inflation at its highest in three decades, the PMI showed the steepest rise in prices charged by businesses since the survey began in November 1999.

Escalating inflationary pressures and concerns related to Russia’s invasion of Ukraine led to a slump in business optimism to its lowest since October 2020.

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