Sharp slowdown in private sector growth surprises economists

Inflation and higher interest rates hit companies across the UK this month. (Dominic Lipinski/PA)
Inflation and higher interest rates hit companies across the UK this month. (Dominic Lipinski/PA)

The UK’s private sector appears to have slammed the brakes on growth so far this month, as it fell well short of expectations in a closely followed survey.

According to the purchasing managers index, the economy is still growing, but has fallen behind compared to previous months.

The survey, compiled by S&P Global and CIPS showed that it sank to its weakest point in six months.

It scored 50.7 in July, down sharply from 52.8 last month.

Freight lorries lined up on the M20 near Ashford, Kent
Supply chains improved rapidly this month, the survey indicated (Gareth Fuller/PA)

Although the figures indicate that the economy is still growing, anything over 50 is positive, it is a sharp slowdown and much worse than the 52.3 that experts had forecast.

The lower the figure goes the worse it is for the economy.

The companies who filled out the survey said that they had been hit by rising interest rates, still high levels of inflation and caution among customers.

It dampened the post-pandemic rebound in what households spend on leisure activities, the survey found.

“The UK economy has come close to stalling in July which, combined with gloomy forward-looking indicators, reignites recession worries,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“July’s flash PMI survey data revealed a deepening manufacturing downturn accompanied by a further cooling of the recent resurgence of growth in the service sector.”

Dr John Glen, chief economist at the Chartered Institute of Procurement and Supply said: “Higher borrowing costs are here to stay and the private sector knows it.

“Interest rate hikes are not just affecting new orders today but spending plans long into the future.

“The biggest concern is increasingly not if the UK economy will enter recession but for how long.”

But there was some good news among the bad.

Manufacturers reported that the time it took their suppliers to deliver goods dropped at the fastest rate since January 1992 when records began.

It marks a normalisation in supply chains that brought down cost pressures for companies, and allowed them to reduce what they charged customers.

“The jigsaw pieces for a supply-led reduction in inflation are falling into place,” Dr Glen said.

“Global supply chains are returning to normal after years of pandemic shortages and rising costs.

“Stocks of unused goods built up to help manage Brexit, the pandemic and most recently global shipping disruption are finally being run down.

“Manufacturing input costs are falling and supplier performance is improving at the fastest rate we have ever seen.

“This renewed supply chain agility, combined with falling raw material and transportation costs, could not have come at a better time for business.”