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UK economy ‘running on empty’ as high inflation threatens recession, and drives up borrowing costs – business live


UK economy ‘running on empty’ as high inflation threatens recession

UK firms have been hit by a slowdown in new orders, indicating that the economy is ‘running on empty’ as business confidence falls to levels that typically signal a recession.

S&P Global’s survey of UK purchasing managers at services firms and manufacturers found that new order growth this month was the weakest since February 2021.

Factory bosses reporting a drop in new business for the first time in two years,

UK private sector firms said demand was hit by hesitancy among clients and squeezed budgets due to rising inflation.

Overall, June’s composite PMI index (which tracks activity in the economy) was unchanged at 53.1 in June, showing the slowest growth in a year, helped by orders placed in earlier months.

But the new order index fell to 50.8, the lowest since March 2021, showing near-stagnation.

Business confidence slumped to its weakest since May 2020, as firms worried about customers cutting back on spending, and the impact of rapid inflation on the longer-term economic outlook.

Job creation was the fastest for three months, led by stronger hiring in the service sector, while wage growth pushed up businesss costs.

Firms also kept raising their own prices, as they passed on higher energy, fuel and wage costs to customers.

Chris Williamson, chief business economist at S&P Global Market Intelligence says the data suggests the UK faces ‘a troubling combination of recession and elevated inflation’.

“The economy is starting to look like it is running on empty. Current business growth is being supported by orders placed in prior months as companies report a near-stalling of demand. Manufacturers in particular are struggling with falling orders, especially for exports, and the service sector is already seeing signs of the recent growth spurt from pent-up pandemic demand move into reverse amid the rising cost of living.

“Business confidence has now slumped to a level which has in the past typically signalled an imminent recession. The weakness of the broad flow of economic data so far in the second quarter points to a drop in GDP which the forward-looking PMI numbers suggest will gather momentum in the third quarter.

“While there are some signs that the inflation could soon peak, the survey data suggest the rate of inflation will meanwhile remain historically high for some time to come, indicating that the UK looks set for a troubling combination of recession and elevated inflation as we move into the second half of the year.

Some hinting at a peaking of UK #CPI #inflation in the flash PMI data for June, but this chart illustrates how CPI inflation lags the PMI, so we can expect CPI to remain very elevated for some time still before moderating later in the year pic.twitter.com/yCxB8KeEqY

— Chris Williamson (@WilliamsonChris) June 23, 2022

Full story: UK economy starting to ‘run on empty’ as order books dry up

Larry Elliott

Larry Elliott

Britain’s economy is starting to “run on empty” as post-pandemic order books dry up and the highest inflation in 40 years affects confidence, the latest snapshot of the private sector has shown.

Flash estimates of the economy’s performance in June showed business optimism at its lowest since the early months of the Covid-19 pandemic in the spring of 2020 and the sharpest drop in new order volumes for a year.

The monthly survey of purchasing managers produced by S&P and the Chartered Institute of Procurement and Supply (CIPS) said overall business activity across the services and manufacturing sectors was unchanged on the 15-month low of 53.1 reached in May.

A reading above 50 suggests private sector activity is expanding while a reading below 50 points to contraction….

Here’s the full story:

UK retail sales weaken as inflation hits consumers

The UK’s cost of living squeeze has hit spending at UK retailers this month.

British retailers have reported a year-on-year fall in sales in June, the third month in a row in which sales volumes didn’t grow.

The CBI’s latest ‘distributive trades’ survey, just released, found that sales were seen as poor for the time of year in June and are expected to remain below seasonal norms in July too.

Retail sales volumes fell slightly in the year to June, marking the third successive month in which volumes have failed to grow. Retailers expect sales volumes to be flat over the year to July #DTS pic.twitter.com/LR7EqqFHAH

— CBI Economics (@CBI_Economics) June 23, 2022

With demand softening, orders placed with suppliers fell in the year to June, while wholesalers also saw a sharp drop in sales growth.

Ben Jones, lead economist at the CBI, says inflation is eroding shoppers’ disposable income:

“Retail volumes are struggling as high inflation eats away at consumers’ budgets. The squeeze on household incomes appears to have offset any boost to activity from the extended Platinum Jubilee bank holiday earlier this month.

“There are also clearer signs that a downturn in consumer spending is beginning to ripple out across the wider distribution sector, with wholesalers seeing a 14-month period of robust sales growth come to a grinding halt this month.

“As business sentiment weakens, government action is needed urgently to prevent a deeper and more prolonged downturn. Creating a permanent investment incentive and tackling skills shortages by introducing immediate flexibility to the apprenticeship levy would be strong first steps for boosting confidence.”

Retailers also reported lower orders with suppliers—a fourth consecutive month of flat or falling orders. Orders are expected to decline at a similar pace next month #DTS pic.twitter.com/hsfkLhz5jp

— CBI Economics (@CBI_Economics) June 23, 2022

The Norwegian central bank.
The Norwegian central bank. Photograph: Gwladys Fouche/Reuters

Rising inflation isn’t just a UK problem of course.

It’s just prompted Norway’s central bank to make its largest interest rate increase in two decades, as it joined the rush to raise borrowing costs.

The Norges Bank’s monetary policy committee has raised its benchmark interest rate by 50 basis points, from 0.75% to 1.25% – more than expected, and predicted another rate hike in August.

The hike came after Norwegian inflation hit 5.4% in April, a 13-year high (but still much lower than the UK, US or eurozone).

Britain has introduced a new tranche of trade sanctions against Russia, a notice published on the government website said, Reuters reports.

The ‘Notice to Exporters’ listed new measures including prohibitions on the export to Russia of a range of goods and technology, the export of jet fuel, and the export of sterling or EU denominated banknotes.

It also said there were new prohibitions on the provision of technical assistance, and financial services, funds, and brokering services relating to iron and steel imports.

The notice set out a further list of goods prohibited for export:

  • internal repression goods and technology
  • goods and technology relating to chemical and biological weapons
  • maritime goods and technology
  • additional oil refining goods and technology
  • additional critical industry goods and technology

Earlier this week we learned that the UK’s sanctions enforcement office has been trying to introduce the “most extraordinary package of sanctions ever implemented” in UK history with a group of just 70 staff.

UK consumer spending softened last week, as job ads fell

UK consumers’ spending on credit and debit cards fell slightly over the past week and the number of job adverts declined, which also indicates growth is slowing.

The ;atest weekly data from the Office for National Statistics found that credit and debit card spending fell two percentage points last week.

Spending fell in all categories, apart from “work related” (including spending on road fuel) which rose by 6 percentage points last week, as petrol and diesel prices continued to climb to new heights.

UK spending on debit and credit cards decreased to 100% of its February 2020 average in the week to 16 June 2022.

There were falls in:

⬇️ Staple spending
⬇️ Social spending
⬇️ Delayable spending

⬆️ Work-related spending (which includes spending on road fuel) increased. pic.twitter.com/vagyxrmpWa

— Office for National Statistics (ONS) (@ONS) June 23, 2022

The number of jobs advertised by recruiters Adzuna fell by 5% in the week to June 17 to 123% of its pre-pandemic average.

Total online job adverts fell by 5% with decreases across all English regions and UK countries.

The categories with the largest decreases were:

▪️ IT, computing and software (14%)
▪️ Wholesale and retail (13%) pic.twitter.com/tq0mLhDZDb

— Office for National Statistics (ONS) (@ONS) June 23, 2022

A fifth of companies reported that their turnover decreased last month compared with April, while 14% reported a rise in turnover.

And over a third said that record energy prices had affected production, suppliers or both.

Of businesses not permanently stopped trading:

▪️ 35% reported their production, suppliers or both had been affected by energy prices in mid-June 2022

This is a slight increase from 33% in the second half of May 2022.

— Office for National Statistics (ONS) (@ONS) June 23, 2022

Consumer-facing businesses at particularly concerned that demand is slowing, says Rhys Herbert, senior economist at Lloyds Bank.

He also warns that small firms less able to protect themselves against inflation.

Here’s his take on today’s survey of UK purchasing managers:

“Even though today’s PMI index remained in growth territory the economic outlook remains cloudy. The one thing that is certain about the UK economy right now is the high degree of uncertainty. High inflation remains a key concern, but as its drivers are still primarily international, using interest rates to combat it creates its own pressure on an economy still shrugging off the effects of the pandemic.

“While there are now signs that blockages and delays in supply chains are easing, these are still well above normal and affecting prices. In particular, fuel and raw material costs remain very elevated, and while bigger businesses may be able to hedge these, that may be less of an option for smaller ones, which are left to explore other operational and financial options to ease pressures on their profit margins.

“Meanwhile, consumer-facing businesses, particularly, are becoming more concerned that demand is slowing. The squeeze on real spending power from high inflation on essentials, such as energy and food, leaves little room for other, more discretionary items. With further fuel cost rises to come and broader above-target inflation to remain for some time, businesses have almost certainly not yet seen the full effects of the squeeze on spending.”

UK firms are being hit by rising inflationary pressures, warns Dr. Peter Colman, partner at global consultancy Simon-Kucher & Partners:

“Another disappointing flash PMI for the UK this morning with Manufacturing down to 53.4 for June from 54.6 previously, though Services steadies at 53.4. These figures follow on from the slowdown in May’s data and yesterday’s record CPI reading, showing that inflationary pressures on the UK economy are continuing to build.

“It’s becoming increasingly obvious that UK businesses in the manufacturing and services sectors are caught between a rock and a hard place. With unprecedented levels of inflation, slowing volumes and recession fears, implementing price increases is the only viable option to address margin erosion – a solution that many businesses have been desperate to avoid but may no longer be able to do so.

“With no obvious end in sight, the agenda within many UK boardrooms is turning from growth to profitability.”

Supply chain managers are worried about the current cost of doing business, as inflation hits 40-year highs, says Duncan Brock, group director at CIPS:

“The economic uncertainty brought about by war disruptions, the cost of living crisis, and China’s Zero Covid-19 policy, have all dampened [UK] business optimism to its lowest point since the start of the pandemic.

Here’s the PMI report:

🇬🇧 Latest flash data revealed growth in the UK with the #PMI unchanged at 53.1 in June. That said, new order growth slowed as the cost of living crisis intensified while service providers continued to outperform manufacturers. Read more: https://t.co/HeY8QDLdU0 pic.twitter.com/9QRK2ZeFV7

— S&P Global PMI™ (@SPGlobalPMI) June 23, 2022

UK economy ‘running on empty’ as high inflation threatens recession

UK firms have been hit by a slowdown in new orders, indicating that the economy is ‘running on empty’ as business confidence falls to levels that typically signal a recession.

S&P Global’s survey of UK purchasing managers at services firms and manufacturers found that new order growth this month was the weakest since February 2021.

Factory bosses reporting a drop in new business for the first time in two years,

UK private sector firms said demand was hit by hesitancy among clients and squeezed budgets due to rising inflation.

Overall, June’s composite PMI index (which tracks activity in the economy) was unchanged at 53.1 in June, showing the slowest growth in a year, helped by orders placed in earlier months.

But the new order index fell to 50.8, the lowest since March 2021, showing near-stagnation.

Business confidence slumped to its weakest since May 2020, as firms worried about customers cutting back on spending, and the impact of rapid inflation on the longer-term economic outlook.

Job creation was the fastest for three months, led by stronger hiring in the service sector, while wage growth pushed up businesss costs.

Firms also kept raising their own prices, as they passed on higher energy, fuel and wage costs to customers.

Chris Williamson, chief business economist at S&P Global Market Intelligence says the data suggests the UK faces ‘a troubling combination of recession and elevated inflation’.

“The economy is starting to look like it is running on empty. Current business growth is being supported by orders placed in prior months as companies report a near-stalling of demand. Manufacturers in particular are struggling with falling orders, especially for exports, and the service sector is already seeing signs of the recent growth spurt from pent-up pandemic demand move into reverse amid the rising cost of living.

“Business confidence has now slumped to a level which has in the past typically signalled an imminent recession. The weakness of the broad flow of economic data so far in the second quarter points to a drop in GDP which the forward-looking PMI numbers suggest will gather momentum in the third quarter.

“While there are some signs that the inflation could soon peak, the survey data suggest the rate of inflation will meanwhile remain historically high for some time to come, indicating that the UK looks set for a troubling combination of recession and elevated inflation as we move into the second half of the year.

Some hinting at a peaking of UK #CPI #inflation in the flash PMI data for June, but this chart illustrates how CPI inflation lags the PMI, so we can expect CPI to remain very elevated for some time still before moderating later in the year pic.twitter.com/yCxB8KeEqY

— Chris Williamson (@WilliamsonChris) June 23, 2022

Full story: UK borrowed £14bn in May as inflation drove up interest debt costs

Phillip Inman

Phillip Inman

Government borrowing was higher than expected in May at £14bn as soaring inflation sent interest payments on the UK’s debt to a monthly record, my colleague Phillip Inman writes:

The Office for National Statistics (ONS) said debt interest payments leapt 70% on a year ago to £7.6bn, the third highest debt interest payment made by central government in any single month and the highest payment in May on record.

Some economists said the increase in borrowing and the UK’s slowing economy was likely to push government borrowing £20bn higher this year than the Office for Budget Responsibility (OBR), the Treasury’s independent forecaster, expected at its last estimate in March.

Paul Dales, chief UK economist at the consultancy Capital Economics, said:

“With the economy weakening and interest rates rising, the public finances will probably perform worse this year than the OBR forecast.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the extra spending by the government to protect low-income families and pensioners from inflation would also dent the public finances in the second half of the financial year.

“Accordingly, we think that public borrowing will total about £130bn this year, well above the OBR’s £99bn forecast.

June’s ‘flash PMI’ report shows that the eurozone economy is slowing fast, explains Chris Williamson, chief business economist at S&P Global Market Intelligence:

“Eurozone economic growth is showing signs of faltering as the tailwind of pent-up demand from the pandemic is already fading, having been offset by the cost of living shock and slumping business and consumer confidence.

Excluding pandemic lockdown months, June’s slowdown was the most abrupt recorded by the survey since the height of the global financial crisis in November 2008.

The slowdown means the latest data signal a rate of GDP growth of just 0.2% at the end of the second quarter, down sharply from 0.6% at the end of the first quarter, with worse likely to come in the second half of the year. Inflows of new business have stalled, led by a slump in demand for goods and reduced demand for services from cash-strapped consumers in particular.

Eurozone business growth slumps as rising prices hit firms

Euro zone business growth has slowed sharply to a 16-month low, as demand stalled and rising prices hit customer spending.

S&P Global’s flash Composite Purchasing Managers’ Index (PMI) has slumped to 51.9 in June from 54.8 in May, weaker than expected, and the lowest level since February 2021.

Manufacturing output contracted for the first time in two years and service sector growth cooled, particularly for consumer-facing services.

This will reinforce concerns that rising prices could push the eurozone into recession, after inflation hit a record high of 8.1% in May.

Eurozone growth slumped to a 16-month low in June, according to #PMI flash estimates, with the headline index dropped to 51.9 (May: 54.8). Demand levels stalled whilst goods production fell for the first time in 2 years. Read more: https://t.co/C8Mzmh43EW pic.twitter.com/3rfCVEmTSB

— S&P Global PMI™ (@SPGlobalPMI) June 23, 2022

An index of new business dropped to a 16-month low of 50.0 — the dividing line between growth and contraction.

With growth slowing, companies scaled back their expectations for output over the coming year to the lowest since October 2020 – just before the first Covid-19 vaccine results.

The report says:

Both the stagnation of demand and worsening outlook were widely blamed on the rising cost of living, tighter financial conditions and concerns over energy and supply chains linked to the Ukraine war and ongoing pandemic disruptions.

Price pressures meanwhile remained elevated at levels not seen prior to the pandemic, though a moderation of cost growth for a third successive month hinted at a peaking in the rate of inflation.

Flash PMI data out of Europe this morning is grim, with the French and German metrics coming in below the analyst forecast range, pretty much. $EUR pressured ahead of the release of the Eurozone-wide metrics in around 30 mins.

— Newsquawk (@Newsquawk) June 23, 2022





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