UK business momentum slows in June despite falling inflation

UK business momentum slows in June despite falling inflation

© Reuters. FILE PHOTO: People walk through the ‘More London’ business district with Tower Bridge seen behind in London, Britain, March 16, 2023. REUTERS/Toby Melville

By David Milliken

LONDON (Reuters) – Growth in Britain’s private sector slowed sharply last month, despite businesses facing lower inflation, as higher Bank of England interest rates weighed on demand, a survey showed on Wednesday.

The S&P Global/CIPS services Purchasing Managers’ Index (PMI) for Britain dropped to 53.7 in June from May’s 55.2, in line with a preliminary estimate.

While this was still comfortably above the 50 level which separates growth from contraction in the PMI survey, it was the UK services sector’s lowest reading since March and the biggest month-on-month fall since August 2022.

The composite PMI, which includes manufacturing PMI data released on Monday, also fell to a three-month low and was in line with the flash estimate at 52.8.

“The service sector showed renewed signs of fragility in June as rising interest rates and concerns about the UK economic outlook took their toll on customer demand,” said Tim Moore, economics director at S&P Global (NYSE:) Market Intelligence.

Higher interest rates were having a particular impact on services related to construction and real estate, S&P said.

The BoE unexpectedly raised its main interest rate from 4.5% to 5% last month, the highest since 2008, after inflation held at 8.7% in May and Governor Andrew Bailey said there were signs that inflation could be slow to moderate.

Some economists think the rate rises will push Britain into recession later this year after the economy only grew 0.1% in the three months to the end of April.

Overall input cost inflation was at the lowest level since May 2021 but it was still above pre-pandemic levels, S&P Global said.

“Widespread increases in salary payments offset falling fuel bills and energy prices,” Moore said.

Services companies raised prices by the second-smallest amount since August 2021.

Businesses also increased staff numbers by the most since September 2022, using a greater availability of workers to tackle backlogs that had built up in previous months.

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