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LONDON (Reuters) – Britain’s private sector economic activity plunged in January for the first time in two years, it was shown on Tuesday. Businesses blamed the slowdown on rising Bank of England interest rates, strikes and weak consumer demand.
The S&P Global/CIPS Flash Composite Purchasing Managers Index (PMI) fell to 47.8 in January from 49.0 in December. This is the lowest economist forecast in a Reuters poll and the lowest since January 2021.
“January’s weaker-than-expected PMI highlights the risk of a recession in the UK,” said Chris Williamson, chief business economist at S&P Global.
“Industrial disputes, labor shortages, declining exports, rising costs of living and higher interest rates all mean that the pace of the recession has accelerated again at the start of the year,” he added.
Official data show that the UK economy grew better than expected in November, prompting statisticians to mark a second consecutive quarter of declines in output, the widely-used definition of recession in Europe, in late 2022. Unlikely.
But most economists expect output to fall this year, a prospect that will weigh on BoE policymakers as they consider ways to raise interest rates further this week at their Feb. 2 meeting. .
Financial markets expect the central bank to raise UK interest rates from 3.5% to 4% next week to tackle double-digit inflation, with interest rates expected to peak at around 4.5% later this year. .
Britain is also in the midst of a wave of industrial action as rail workers, nurses, ambulance drivers and teachers all demand inflation-matched wages.
PMI data on Tuesday showed prices charged by businesses rose at their slowest rate since August 2021, but the rise was still steep by historical standards.
Costs have risen at the slowest pace since April 2021 as energy prices fell, but wage gains remain strong and optimism for the year ahead reached an eight-month high.
Companies cut a small number of jobs in contrast to the rapid job growth in 2021-2022.
Reported by David Milliken.Editing by Susan Fenton
Our standards: Thomson Reuters Trust Principles.
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