The latest purchasing manager index (PMI) figures for the UK show the country is on the brink of a recession.
The UK S&P Global/CIPS services PMI fell to 50.9 in August from 52.6 in July, below the consensus and the flash estimate of 52.5 dragging the composite PMI dropped to 49.6 in August, from 50.9 in July, also below the consensus and the flash estimate of 50.9.
Samuel Tombs, chief UK economist, at Pantheon Macroeconomics noted the services PMI fell to its lowest level since February 2021, and likely is consistent with overall services output flatlining, given its exclusion of public sector activities (which likely fell again due to the winding-down of Covid testing and vaccinations) and the tendency for the PMI to give an overly upbeat steer on growth in real GDP when inflation is high.
He said the drop in the new orders index to 51.0, from 52.1 in July, suggests a revival isn’t imminent, while the fall in the backlogs of work balance below 50 for the first time since February 2021 suggests that businesses now have enough staff to meet demand.
The employment index, which fell to 55.2, from 55.8, likely will fall considerably further over the coming months and a large net balance of services firms, however, have continued to raise their prices, Tombs commented.
Tombs said he "expects the Bank of England Monetary Policy Committee to raise interest rates by 50bp at both its September and November meetings, despite the developing recession."