LONDON, Oct 5 (Reuters) – Britain’s private sector economy suffered its worst contraction in activity last month since the COVID-19 lockdown early last year, underscoring the challenges facing Prime Minister Liz Truss, who on Wednesday underscored her concern for the boost to economic growth.
The final version of the S&P Global UK Composite PMI fell to 49.1 in September from 49.6 in August, the lowest reading since January 2021. Any reading below 50 would indicate a contraction in activity.
While the reading was an improvement from a preliminary “fast” reading of 48.4, service companies, which make up the bulk of the private sector economy, were the least optimistic about the outlook since the early days of the pandemic in May 2020.
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The latest deal from Britain’s biggest retailer Tesco (TSCO.L) added to the jitters looming over the recession.
The supermarket chain forecast full-year profit at the low end of its previous guidance, blaming uncertainty over how the worsening cost of living crisis will affect consumer spending.
New vehicle registrations by private buyers fell 3.6% in September from a year earlier as consumer confidence was at a record low, industry data showed on Wednesday.
Overall registrations rose 4.6%, reflecting strong commercial fleet demand. Auto sales remain severely constrained by post-pandemic supply chain issues and are down more than a third from levels three years ago.
Government measures to support household energy bills announced by Finance Minister Kwasi Kwarteng last month will help households’ disposable income, said Samuel Tombs, an economist at consultancy Pantheon Macroeconomics.
“But any boost to consumer spending from this support appears to be offset by the market dislocation following (Kwarteng’s) mini-budget,” he added, citing higher mortgage costs and Bank of England interest rates.
Most of the PMI survey data was collected before September. January 23, when new Finance Minister Kwarteng threw markets into chaos with historic tax cuts and borrowing in his “small budget”. The central bank was forced to intervene to stabilize the UK bond market.
inflationary pressure
Sterling and gilts showed little reaction to the survey, with investors focusing more on Truss’ economic plans and signs of political instability in her government.
On Wednesday, Truss urged her volatile party to unite to help transform the economy and the country in an effort to restore her dwindling authority after a chaotic first month in office.
The services PMI fell to 50.0 from 50.9 in August, indicating stagnation but still better than the initial reading of 49.2.
“Services companies cut their growth forecasts in September to the lowest level in nearly two-and-a-half years, which survey respondents attributed to concerns about falling disposable income and an unfavorable global economic outlook,” said Tim Moore, S&P Global market intelligence.
New orders, both domestic and foreign, fell, with respondents blaming Brexit and a weakening world economy, as well as low confidence and cost-cutting by customers.
Inflationary pressures remained near record highs in May, as businesses reported “inevitable” price increases due to higher wages, energy and supply bills.
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Reporting by Andy Bruce; Editing by Susan Fenton
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