LONDON, Jan 24 (Reuters) – British private sector economic activity fell at the fastest pace in two years in January, a survey showed on Tuesday, with businesses blaming a rise in Bank of England interest rates, a rise in Bank of England Strikes and weak consumer demand.
The S&P Global/CIPS Composite Purchasing Managers’ Index (PMI) fell to 47.8 in January from 49.0 in December, at the bottom of economists’ forecasts in a Reuters poll and the lowest level since January 2021. A reading below 50 indicates a decline in output.
“The weaker-than-expected PMI data for January highlighted the risk of a recession in the UK,” said Chris Williamson, S&P’s global chief business economist.
“Industrial disputes, staff shortages, lost exports, rising living costs and rising interest rates all meant that the pace of the downturn accelerated again at the start of the year,” he added.
Official data showed Britain’s economy grew more than expected in November, making it unlikely that statisticians will record two consecutive quarters of falling output in the second half of 2022 – the definition of a recession widely used in Europe.
However, most economists expect output to fall this year, a prospect that will put pressure on Bank of England policymakers this week as they consider the extent of further rate hikes at their Feb. 2 meeting.
Financial markets expect the central bank to raise UK interest rates to 4% from 3.5% next week in response to double-digit inflation, and expect rates to peak 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 seek wage increases to keep pace with inflation.
Purchasing managers’ index data on Tuesday showed companies charged the slowest increase in prices since August 2021, though the gains were still substantial by historical standards.
Costs rose at the slowest pace since April 2021 as energy prices fell, although wage gains remained large, while optimism about the year ahead hit an eight-month high.
In stark contrast to the rapid hiring in 2021 and most of 2022, companies cut a small number of jobs.
Reporting by David Milliken; Editing by Susan Fenton
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