LONDON, Jan 24 (Reuters) – British private sector economic activity fell at the fastest pace in two years in January, a survey showed on Tuesday, as businesses blamed high Bank of England interest rates, strikes and weak demand of consumers for the slowdown.
The S&P Global/CIPS composite purchasing managers’ index (PMI) fell to 47.8 in January from 49.0 in December, at the low end of economists’ forecasts in a Reuters poll and the lowest since January 2021. Readings below 50 indicate declines of production.
“The weaker-than-expected PMI numbers in January underscore the risk of the UK slipping into recession,” said S&P Global Chief Business Economist Chris Williamson.
“Industrial disputes, staff shortages, export losses, rising cost of living and higher interest rates all meant the rate of economic decline picked up again at the start of the year,” he added.
Britain’s economy grew more than expected in November, according to official data, making it unlikely that statisticians will record two consecutive quarters of falling output – the widely used definition of recession in Europe – for the second half of 2022. .
However, most economists expect output to fall this year, a prospect that will weigh on BoE policymakers this week as they consider how much further to raise interest rates when they meet on February 2.
Financial markets expect the central bank to raise UK rates to 4% from 3.5% next week to tackle double-digit inflation and see rates peaking at around 4.5% later this year.
Britain is also in the midst of a wave of industrial action, as rail workers, nurses, ambulance drivers and teachers all demand pay rises that match inflation.
Tuesday’s PMI data showed that prices charged by businesses rose at the slowest pace since August 2021, although the increase was still large by historical standards.
Costs rose at the slowest pace since April 2021 as energy prices fell, although wage growth remained strong, while optimism for the coming year hit an eight-month high.
Businesses cut a small number of jobs, in contrast to brisk hiring throughout most of 2021 and 2022.
Reporting by David Milliken; Editing by Susan Fenton
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