The UK’s economic recovery slowed at the end of the third quarter as price pressures intensified as companies passed on rising costs to wages, transport and raw materials, a survey found Thursday.
The flash, or intermediate, composite production index published by the IHS Markit research group and the Chartered Institute of Procurement and Supply fell to 54.1 in September from 55.3 in August, the weakest reading since the start the reopening of the economy in March. Growth was driven by the service sector, where companies reported an increase in consumer confidence and a boost in stay business.
But supply chain disruption all but stifled growth in the manufacturing sector: the Markit production index for the sector fell to 51.8, a level suggesting that only a small majority of companies had experienced a decline. expansion.
James Smith, an economist at ING, said the survey pointed out “that the recovery is stagnating as winter approaches”, with rising energy prices, tighter fiscal policy and possible fallout from the economic downturn. end of the holiday will likely mean “a Bank of England rate hike is still a long way off”.
Price pressures have increased even as the UK’s post-lockdown recovery faltered, according to the survey. A growing proportion of companies said input prices had increased – citing higher wages, raw material prices and transportation costs. The proportion of companies that increased their selling prices reached the highest level in the 25 years of the survey’s existence.
Chris Williamson, chief economist at IHS Markit, said the data “would add to concerns that the UK economy is heading into an episode of ‘stagflation’, with growth continuing to decline as prices rise more and more.” There were clear signs of cooling demand and activity held back by material and labor shortages – especially in food, beverages and auto manufacturing, he added.
Firms were still hiring quickly in the service sector, keeping the job creation rate close to August’s record highs, but employment growth in the manufacturing sector slowed due to lower demand and staff shortages, said IHS Markit.
Economists said the survey gave Bank of England policymakers reason to wait for the recovery to develop before raising interest rates – even as the U.S. Federal Reserve prepares to tighten policy.
Samuel Tombs, of consultancy Pantheon Macroeconomics, said the main driver of the slowdown was weak demand, adding that with higher inflation and benefit cuts weighing on household disposable income, the pace of the recovery “looks set to remain slow over the winter”.
The UK data paints a similar picture to surveys of eurozone purchasing managers, also released on Thursday, which showed supply chain problems weighing on manufacturing and increasing pricing pressures.