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UK recession risk intensifies

British companies face a more economically difficult September than expected. The country is experiencing rising unemployment and the risk of recession amid the Bank of England’s suspension of interest rate hikes, Reuters informs.

S&P’s preliminary ‘flash’ reading of the global purchasing managers’ index (PMI) for the UK services sector fell to 47.2 from 49.5 in August, dropping further below the 50 dividing line between growth and contraction.

The Bank of England (BoE) and the Treasury are closely monitoring the survey, as it is often used as an indicator of economic activity.

The lowest since the quarantine due to the pandemic in January 2021, the PMI indicator was below all forecasts, according to a Reuters poll of economists, which showed a value of 49.2.

Apart from the Covid-19 pandemic, the last time the index fell so low was during the global financial crisis, while its employment indicator experienced the most significant drop in recorded history.

BoE rate-setters had access to the survey data even before they decided to keep the interest rate at 5.25 per cent. Data company S&P Global stated that the figures corresponded to a fall in quarterly economic output of around 0.4 per cent.

The disappointing PMI survey results for September mean a recession is looking increasingly likely in the UK.

Despite reports of strong wage growth, the survey notes a further decrease in inflation pressure from companies.

“A major concern in the inflation outlook has been wage growth, but with the survey now signalling the sharpest fall in employment since 2009, wage bargaining power is being eroded rapidly.”

The PMI for the manufacturing sector improved in September to 44.2 from 43.0, but remains in recession. S&P Global’s joint 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 indeed seeing a mounting toll on the economy from the reality of the increased cost of living and the recent rapid rise in interest rates.

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