UK’s slow growth and rising inflation gives BoE headache – PMIs

September 23, 2021

By Andy Bruce

LONDON (Reuters) – Britain’s economy lost more momentum this month as businesses grappled again with rising costs, a survey showed, highlighting the difficult backdrop for Bank of England officials ahead of Thursday’s interest rate decision.

The preliminary “flash” IHS Markit/CIPS flash Composite Purchasing Managers’ Index dropped for a fourth consecutive month in September to its lowest reading since February, slipping to 54.1 from 54.8 in August.

A Reuters poll of economists had pointed to a reading of 54.5. The survey showed a slowdown in both the services and manufacturing sectors.

The readings, which will have been seen by BoE officials in advance of the central bank’s 1100 GMT policy announcement, add to signs of fading momentum in the economy just as inflation surges, fuelled by global supply chain problems and rising energy prices.

“The September PMI data will add to worries that the UK economy is heading towards a bout of ‘stagflation’,” said Chris Williamson, chief business economist at IHS Markit, which compiles the PMI data.

“While there are clear signs that demand is cooling since peaking in the second quarter, the survey also points to business activity being increasingly constrained by shortages of materials and labour, most notably in the manufacturing sector but also in some services firms.”

The PMI for the services sector fell to 54.6 in September from 55.0 in August, its lowest level since February when Britain was still in lockdown.

Business expectations among services companies fell to a nine-month low and they raised prices on the broadest basis since records started in the mid-1990s.

“Brexit was often cited as having exacerbated global pandemic-related supply and labour market constraints, as well as often being blamed on lost export sales,” Williamson said.

While the BoE has said it expects the current rise in inflation to be transitory, the increase has put rate-setters under more pressure to explain how they plan to unwind the stimulus launched last year to help the economy through the COVID-19 pandemic.

The PMI for the manufacturing sector fell to 56.3 in September from 60.3 in August, also marking its lowest level since February.

(Reporting by Andy Bruce; Editing by Hugh Lawson)

Source Link UK’s slow growth and rising inflation gives BoE headache – PMIs