Britain’s biggest business group said a year-long slump across the private sector is likely to continue for at least three more months, as high inflation and interest rates hold back growth.
(Bloomberg) — Britain’s biggest business group said a year-long slump across the private sector is likely to continue for at least three more months, as high inflation and interest rates hold back growth.
The Confederation of British Industry said activity has fallen or stagnated for every three-month rolling period in the past year, a trend its survey suggests will continue in the next quarter. Manufacturing output fell sharply in the period through August, while services slid at a pace similar to the previous three months.
It’s the latest indicator pointing to a gloomy outlook for the economy, after Bank of England data showed Wednesday that a broad measure of money supply had stopped growing for the first time in 13 years. The readings add to pressure on Chancellor of the Exchequer Jeremy Hunt as he prepares his autumn fiscal plan to find ways to support growth.
Respondents to the CBI survey said that lower demand, cost pressures and general uncertainty were prompting companies to cut investment. Businesses are struggling to pay higher debt servicing costs while also meeting net-zero emissions targets and complying with regulatory burdens.
“Activity remains weak in the private sector, reflecting difficult trading conditions for businesses and the growing impact of the higher cost of credit,” said Alpesh Paleja, lead economist at CBI. The government would “also need a renewed focus on building the productive capacity of the economy, which is the surest way to drive up growth and living standards,” he added.
Read more: BOE Analysis Rejects Claims of Greedflation Profiteering in UK
Output volumes in the manufacturing sector fell at the sharpest rate since September 2020. Distribution sales – which cover retail, wholesale and motor trades – flatlined as an expansion in the motor sector offset mild declines in the other two sub-sectors.
In services, volumes continued to fall at a steady rate. Employment, however, remained resilient as manufacturers continued to complain about a lack of access to workers. Respondents to the CBI’s surveys – whose predictions have undershot reality since the pandemic began – reckoned wage growth would still be at 4.1% over the next year.
That will worry the BOE, which is concerned that shortages of skilled staff are pushing up wages and driving inflation higher. Official estimates put private-sector wage growth at 7.4% in the three months to June.
The trend is pushing up price expectations in the retail and services sectors, the CBI said, although both have receded from their peaks last year. Business sentiment was also flat across the private sector for a second consecutive quarter, the CBI said.
A separate survey from Lloyds Bank was more optimistic, with business confidence surging to an 18-month high in August. That reflected relief after the BOE raised its base interest rate by only 25 basis points this month rather than the 50 basis points some had expected, Lloyds said.
“Businesses felt relief that interest rates may be reaching their peak, alongside hopes that measures to tackle inflation are having an impact,” said Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking.
(Updates with money supply in third paragraph. An earlier version of this story corrected a reference to the UK in the first paragraph.)
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