UK private sector output unexpectedly falls - PMI
By Abigail Townsend
Date: Friday 22 Sep 2023
(Sharecast News) - UK output unexpectedly fell in September, a closely-watched survey showed on Friday, dragged lower by a weaker service sector.
The latest flash S&P Global/CIPS UK PMI Composite Output Index came in at 46.8, down on August's 48.6 and a 32-month low. It was also the fastest rate of decline since January 2021, or March 2009 once pandemic disruptions were stripped out.
Analysts had been expecting a slight uptick, to 48.7.
Within that, the UK manufacturing output index nudged higher, to 44.6 from 44.1 a month earlier, while the manufacturing PMI was 44.2, a two-month high and up on August's 43.0.
But the services PMI business activity index fell to 47.2 from 49.5, a 32-month low and below consensus, for 49.4.
Survey respondents said demand had been hit by the cost of living crisis and higher borrowing costs.
However, input price inflation saw its largest monthly fall so far in 2023. Coupled with weak demand, it meant the increase in average prices charged by private sector was the slowest since February 2021.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The disappointing PMI survey results for September mean a recession is looking increasingly likely in the UK.
"The steep fall in output signalled by the flash PMI data is consistent with GDP contracting at a quarterly rate of over 0.4%, with a broad-based downturn gathering momentum to hint at few hopes of any imminent improvement.
"With the Bank of England having had sight of the survey data prior to its latest policy decision, the worrying signals of heightened recession risk and cooling inflationary pressures are likely to have added to calls to halt rate hikes."
John Glen, chief economist at the Chartered Institute of Procurement and Supply, said: "Businesses felt the impact of subdued market conditions and interest rate hikes, and businesses reined back costs and capacity to stay afloat.
"This ongoing pressure is leaking the lifeblood out of private sector business, so many will be experience some relief that interest rates have remained the same this month.
"With more stabilised market conditions, businesses may feel they can continue to build on their strong business optimism, which surprisingly stayed close to last month's figures."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "We are sceptical of the composite PMI's signal that economic activity is declining quickly, given that real wages have picked up and consumer confidence has improved materially over recent months.
"For now, we are sticking with our forecast for a marginal 0.2% quarter-on-quarter increased in GDP in their quarter. Needless to say though [the] report further increases the changes that the Bank of England's tightening cycle is over."
The survey was carried out between 12 and 20 September. A reading below the neutral 50 mark indicates contraction, while one above it suggests growth.
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