Private sector growth flat in August as demand falls, PMI shows

Growth in the private sector edged closer to stagnation this month, with the manufacturing sector shrinking and growth in the dominant services sector weakening.

The reading for the S&P Global/CIPS flash composite purchasing managers’ index dropped to 50.9 in August from 52.1 in July, its lowest since February 2021 and close to the 50 level that separates growth from contraction.

Output in services, which accounts for about four fifths of the economy, remained in growth. It edged down to 52.5 from 52.6 the previous month but still the pace of growth was the slowest since the lockdown early last year.

A fall in demand, staff shortages and long delivery times for materials led to a contraction in manufacturing. The PMI reading for the sector dropped to 46 in August from 52.1 in July.

Forecasters have warned that the UK is close to a recession, with the Bank of England expecting it to begin in winter when another jump in energy bills squeezes household incomes and erodes demand. PMIs in the US and eurozone have already fallen below 50.

New business rose slightly in August, driven by a greater number of new orders for service companies. Manufacturers registered the sharpest fall in new business since May 2020.

There was a slowdown in price rises for producers from 14.6 per cent in July to less than 6 per cent this month.

Annabel Fiddes, economics associate director at S&P Global market intelligence, said: “The UK private sector moved closer to stagnation in August as mild growth of activity across the service sector only just offset a deepening downturn at manufacturers. Waning customer demand amid the weaker economic outlook and shortages of both staff and inputs were reported to have hit goods producers hard, with firms registering the quickest drops in output and new work since May 2020.”

Manufacturing output fell for the first time since February 2021 in the three months to August, with no growth expected in the next quarter, according to research by the CBI, which represents businesses, and Accenture, the professional services company.

The survey of 257 manufacturers found new orders below “normal” levels for the first time since last April.

Even though output rose in 10 of the 17 sectors surveyed, a decline in the production of food, drink, tobacco, mechanical engineering and paper pulled down the headline figure.

Alpesh Paleja, CBI lead economist, said: “Manufacturers continue to operate against a background of high input costs and significant operational delays. When coupled with an oncoming economic downturn, it’s not surprising to see orders and activity ebb away.”

He added: “With expectations for future growth subdued, steps will need to be taken to shore up confidence in the short to medium term — particularly supporting vulnerable firms and consumers with energy price rises.”