UK recession risk deepens as businesses falter: PMI

LONDON (Reuters) – British businesses endured a much tougher September than feared, marked by rising unemployment and risks of recession, according to a survey on Friday that underlined why the Bank of England paused its series of rate hikes. of interest this week.

A preliminary reading of the UK’s S&P Global Purchasing Managers’ Index (PMI) for the services sector fell to 47.2 from 49.5 in August, sinking further below the 50 dividing line between growth and contraction.

The BoE and Treasury closely monitor the survey as a high-frequency indicator of activity in the economy.

It was the lowest PMI score since the January 2021 pandemic lockdown and below all forecasts in a Reuters poll of economists that pointed to a reading of 49.2.

Aside from the COVID-19 pandemic, the last time the index fell this low was during the global financial crisis, while its employment gauge suffered its biggest drop on record outside of the pandemic.

Bank of England rate setters had access to the survey before their decision to leave waiting interest rates this week at 5.25%.

Data firm S&P Global said the figures were consistent with a drop in quarterly economic output of about 0.4%.

“Disappointing September PMI survey results mean a recession looks increasingly likely in the UK,” said Chris Williamson, chief business economist at S&P Global.

The survey showed a further decline in corporate inflation pressure, despite widespread reports of strong wage growth.

“A major concern in the inflation outlook has been wage growth, but with the survey now pointing to the steepest fall in employment since 2009, wage bargaining power is eroding rapidly,” Williamson said.

The manufacturing PMI improved in September, from 43.0 to 44.2, but remained stuck in contraction territory.

S&P Global’s combined manufacturing and services gauge, the Composite PMI, fell to 46.8 from 48.6 in August, the lowest reading since January 2021.

“Indeed, the third quarter is seeing an increasing cost to the economy due to the reality of the rising cost of living and the recent rapid rise in interest rates,” Williamson said.

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