UK economy on brink of recession as Truss takes over, figures show | Economics

Liz Truss will turn out to be the UK’s subsequent prime minister with the economic system on the point of recession, in response to figures that present non-public sector exercise fell final month as companies wrestle with hovering prices.

The most recent snapshot from S&P International and the Chartered Institute of Procurement and Provide (Cips) revealed a “extreme and accelerated” decline in manufacturing output in August, alongside weaker exercise within the UK’s dominant service sector.

The month-to-month enterprise survey, which is carefully watched by the federal government and the Financial institution of England for early warning indicators from the economic system, discovered rising worries over hovering inflation and a marked discount in confidence amongst companies.

Value pressures remained extraordinarily elevated, linked to rising costs for vitality and gasoline as Russia’s battle in Ukraine additional drives up prices on the wholesale market. Not like households, businesses do not benefit from an energy price cap.

“The incoming prime minister can be coping with an economic system that’s going through a heightened threat of recession,” mentioned Chris Williamson, the chief enterprise economist at S&P International Market Intelligence, with the British economic system going through a “deteriorating labour market and chronic elevated worth pressures linked to the hovering value of vitality”.

The month-to-month buying managers’ index from S&P/Cips fell to 49.6 in August, down from 52.1 in July. Any studying above 50 suggests development in non-public sector exercise.

The figures come as some economists urged Britain’s economic system slipped into recession this summer season as households tightened their belts amid the price of dwelling disaster. The Bank of England has forecast inflation will peak above 13%, the very best degree for the reason that early Nineteen Eighties, and initiatives a prolonged recession beginning within the remaining quarter of the yr.

Economists at Goldman Sachs mentioned final week that inflation could peak above 22%, near matching the postwar report set in 1975, if present excessive wholesale vitality costs are sustained into the brand new yr.

In her acceptance speech after beating Rishi Sunak in the Conservative leadership race, Truss pledged to “ship a daring plan to chop taxes and develop the economic system”, and likewise “take care of folks’s vitality payments” forward of a troublesome winter for households and companies.

Economists mentioned challenges together with sky-high inflation, Brexit and extreme workers shortages had been weighing on development. With households going through the largest hit to their dwelling requirements for the reason that Nineteen Fifties, the S&P and Cips snapshot mirrored collapsing demand for consumer-facing providers corresponding to eating places, inns, journey and leisure actions.

John Glen, the chief economist on the Cips, mentioned: “Port disruption, Brexit paperwork and shortages all proceed to play a job in driving inflation, the sector is comparatively powerless within the face of ever-increasing vitality payments.

“Companies companies can have their eyes firmly on the brand new prime minister this week as they hope for a coverage pushed answer to rocketing prices.”