Britain’s economy is starting to ‘run on empty’ as post-pandemic order books dry up and the highest inflation in 40 years hurts confidence, the latest private sector snapshot showed.
Flash estimates of the economy’s performance in June showed business optimism was at its lowest since the early months of the Covid-19 pandemic in spring 2020 and the biggest drop in new order volumes for a year.
The monthly survey of purchasing managers by S&P and the Chartered Institute of Procurement and Supply (CIPS) indicates that overall business activity in the services and manufacturing sectors was unchanged from the 15-month low of 53.1 reached in May.
A reading above 50 suggests that private sector activity is expanding while a reading below 50 indicates contraction.
Labor demand remained strong despite weaker growth in new businesses, with job creation the highest in three months.
Chris Williamson, chief economist at S&P Global Market Intelligence, said: “The economy is starting to look like it’s running on empty. The current growth in activity is supported by orders placed in previous months, with companies reporting a virtual stall in demand.
“Manufacturers in particular are grappling with falling orders, especially for exports, and the services sector is already seeing signs of the recent growth spurt due to pent-up pandemic demand reversing amid the rise in the Cost of life.”
A similar PMI for the euro zone showed a sharper slowdown than in the UK, with the composite measure for services and manufacturing falling from 54.8 to 51.9 in June. Williamson said that – aside from the months hit by the pandemic-induced lockdowns, it was the biggest drop since the 2008 global financial crisis.
Williamson said business confidence in the UK had now “collapsed” to a level which in the past usually signaled an impending recession. “The weakness in the broad stream of economic data so far in the second quarter points to a decline in GDP which forward-looking PMI numbers predict will accelerate in the third quarter,” he added.