Andy Bruce

LONDON (Reuters] – The slowdown in Britain’s private sector this month was much greater than predicted, adding to the recession fears as inflation pressures ratcheted up. According to a Tuesday survey, rising pessimism was revealed by a business survey.

S&P Global (NYSE:)’s flash Composite Purchasing Managers’ Index (PMI), a monthly gauge of the services and manufacturing industries, fell to 51.8 in May from 57.6 in April, its lowest level since February last year.

According to Reuters, economists polled by the company found that preliminary results were worse than expected. They had predicted a fall to 57.0.

After the data, Sterling dropped sharply to the U.S. Dollar and fell 0.9% on the day to $1.2480 GMT. Short-dated British government bonds prices, however, soared.

Samuel Tombs (chief UK economist, Pantheon Macroeconomics) stated that the May collapse of the composite PMI is the most obvious sign yet that demand has slowed in reaction to the squeeze on household real disposable incomes.

Most surveys of British business activity have been quite robust up until now, even though consumer confidence was at an all-time low of 9%, which is a record for the country.

“The latest data indicate a heightened risk of the economy falling into recession as the Bank of England fights to control inflation,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

The BoE is expected to increase interest rates by at least 2% in the coming year, compared to 1% currently.

Services sector was the most affected by the slowdown. There, business optimism for the coming twelve months plummeted to its lowest point since May 2020 during the first coronavirus locking down.

Williamson explained that businesses are seeing more cautious moods in households and businesses due to Brexit’s cost-of living crisis, rising interest rates, China lockdowns, and war in Ukraine.

Since 1996, when the PMI began to collect services PMI data, reports of businesses paying higher prices were common.

Williamson indicated that some cost pressures could be reaching a peak, with businesses reporting resistance from their customers to rising prices and the resulting reduction in demand.

In May, the flash PMI (PMI) for manufacturing also dropped to 54.6, which is lower than 55.8 recorded in April. The fastest decline in export orders since May 2020 was the result. Many manufacturers blame Brexit trade frictions for this drop.