LONDON (Reuters) – British businesses endured a much tougher September than expected, marked by rising unemployment and recession risks, a survey showed on Friday, highlighting why the Bank of England is pausing interest rate hikes this week.
The UK’s preliminary S&P Global Purchasing Managers’ Index (PMI) reading for the services sector fell to 47.2 from 49.5 in August, falling further below the 50 line dividing growth from contraction.
The Bank of England and the Treasury closely monitor this survey as a high-frequency measure of economic activity.
This was the lowest PMI score since the pandemic lockdown in January 2021 and below all expectations in a Reuters poll of economists that indicated a reading of 49.2.
Aside from the Covid-19 pandemic, the index last fell this low during the global financial crisis, while its measure of employment suffered its biggest decline ever outside the pandemic.
Bank of England interest rate setters had access to the poll ahead of their decision to leave interest rates unchanged this week at 5.25%.
Data firm Standard & Poor’s Global said the numbers were consistent with a decline in quarterly economic output of about 0.4%.
“Disappointing September PMI survey results mean a recession looks increasingly likely in the UK,” said Chris Williamson, chief business economist at S&P Global.
The survey showed a further decline in inflation pressure from businesses, despite widespread reports of strong wage growth.
“The main concern in inflation expectations has been wage growth, but with the survey now pointing to the biggest fall in employment since 2009, bargaining power on wages is rapidly eroding,” Williamson said.
The manufacturing PMI improved in September, to 44.2 from 43.0, but remained mired in contraction territory.
Standard & Poor’s combined measure of manufacturing and services – the composite PMI – fell to 46.8 from 48.6 in August, the lowest reading since January 2021.
“The third quarter is already seeing increasing losses in the economy from rising costs of living and the recent rapid rise in interest rates,” Williamson said.
Andy Bruce reports. Edited by Toby Chopra
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