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UK Private Sector Shrinks Most Since Early 2021

ukpmi aug03 23sep22 lt

The UK private sector shrank at the fastest pace since early 2021 on the negative impacts of high costs and a weaker economic outlook, flash survey results from S&P Global and the Chartered Institute of Procurement & Supply showed Friday.

The composite output index came in at a 20-month low of 48.4 in September versus 49.6 in the previous month. The score was forecast to ease moderately to 49.0.

The sector-wise data showed a renewed decline in services activity, which was the principal driver of the lower headline figures.

The services Purchasing Managers' Index slipped to 49.2 from 50.9 a month ago, while the reading was forecast to hit a neutral 50.0 level. Services activity shrank for the first time since February 2021.

Meanwhile, the manufacturing PMI rose to 48.5 from 47.3 in the prior month. The expected level was 47.5.

On Thursday, the Bank of England had raised the benchmark rate by 50 basis points to 2.25 percent, the highest since the 2008 global financial crisis.

The overall rate of inflation will remain a great concern to policymakers, Chris Williamson, chief business economist at S&P Global Market Intelligence said.

"However, the detrimental impact of tightening policy into a recession is becoming increasingly apparent, with the downturn likely to intensify as we head into winter," added Williamson.

The survey showed that total new work fell at the quickest rate in 20 months, at composite level. Employment increased again in September. Although the rate of employment growth was solid, it was unchanged on August's 17-month low.

Data pointed to a further mild easing of inflationary pressure across the private sector. Input price inflation moderated to a one-year low but remained strong overall. Average output charges followed a similar trend to input costs, with the rate of inflation easing to an eight-month low.

Optimism towards the business outlook was the weakest since May 2020. Fears of a UK recession, reduced consumer spending, rising costs and interest rate hikes all weighed on company projections for the year-ahead.

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