The UK service sector registered a moderate contraction in November as economic uncertainty and the cost of living crisis dampened discretionary spending, which in turn hurt demand, final survey data from S&P Global showed on Monday.
Elsewhere, the Confederation of British Industry cautioned that the UK will see a lost decade if no action is taken. With rocketing inflation and negative growth, Britain is in stagflation, the lobby observed.
The Chartered Institute of Procurement and Supply final headline services Purchasing Managers’ Index posted 48.8 in November, in line with flash estimate.
The score was unchanged since October, when the index dropped to its lowest since January 2021.
The survey suggests that GDP is set to fall at a quarterly rate of 0.4 percent, Chris Williamson, chief business economist at S&P Global Market Intelligence, said.
“As such, this is the toughest spell the UK economy has faced since the global financial crisis excluding only the height of the pandemic,” Williamson added.
Amid reports of caution amongst businesses and belt-tightening amongst households, firms reported a concurrent reduction in sales volumes. Sales decreased for a third month in a row.
New export business was also down in November, albeit only marginally as a weak pound underpinned trade with the USA.
There was a moderate increase in backlogs of work despite the underwhelming trends in new business. Firms continued to recruit additional workers to bolster business operations next year.
Indeed, overall expenses increased further at an extremely elevated rate, with inflation picking up since October’s 13-month low.
Average output prices increased in November, reflecting higher input prices. However, mounting competitive pressures and weaker demand conditions constrained pricing power of service providers.
Confidence improved somewhat since October as the political turmoil caused by the ‘mini-budget’ somewhat dissipated. Still sentiment remained historically subdued amid fears of recession and the challenges posed by the cost of living crisis.
The overall private sector registered a fourth successive fall as services activity continued to drop moderately, while manufacturing output decreased at a slightly faster pace.
The S&P/CIPS composite output index held steady at 48.2 in November. The flash reading was 48.3.
The latest Economic Forecast from the CBI said the economy is likely to have fallen into a recession in the third quarter 2022, when GDP shrank by 0.2 percent. For this year, the CBI projected economic growth of 4.5 percent.
The economy will remain in recession until the end of 2023, the lobby assessed. The growth outlook for 2023 was downgraded to -0.4 percent from +1.0 percent.
The outlook improves in 2024, the lobby said, when the GDP expands 1.6 percent, thanks to inflation falling back further and the squeeze on household incomes alleviating.
At the same time, inflation is forecast to average 6.7 percent over 2023, well above the Bank of England’s 2 percent target.
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