Portfolio

UK business activity slows sharply in May

By Michele Maatouk

Date: Tuesday 24 May 2022

UK business activity slows sharply in May

(Sharecast News) - Business activity in the UK slowed sharply in May as inflationary pressures and geopolitical uncertainty weighed on customer demand, according to a survey released on Tuesday.
The S&P Global/CIPS composite purchasing managers' index - which measures activity in the services and manufacturing sectors - fell to 51.8 from 58.2 in April, hitting a 15-month low. This was below expectations for a reading of 56.5 and marked the slowest rise in business activity since the current phase of the recovery began in March 2021.

Meanwhile, the services PMI slid to 51.8 in May from 58.9 in April, missing consensus expectations of 57.0. The manufacturing PMI declined to 54.6 from 55.8, also below the consensus expectations, of 55.0.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come. Meanwhile, the inflation picture has worsened as the rate of increase of companies' costs hit yet another all-time high.

"The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels. The tailwind from the reopening of the economy has faded, having been overcome by headwinds of soaring prices, supply delays, labour shortages and increasingly gloomy prospects. Companies cite increasingly cautious moods among households and business customers, linked to the cost-of-living crisis, Brexit, rising interest rates, China's lockdowns and the war in Ukraine."

Nicholas Farr, assistant economist at Capital Economics, said: "Overall, the PMI survey lends weight to our view that the weakening economy won't solve the issue of soaring inflation without interest rates having to rise much further. This suggests the Bank of England will press ahead with hiking interest rates for the fifth consecutive meeting, by 25bps to 1.25%, on 16th June.

"If inflationary pressures continue to linger even as the economy slows as we expect, then interest rates may well be raised all the way to 3.00% in 2023."

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