A survey showed (Friday) that British companies suffered a much more difficult month than expected this September, characterized by increasing risks of unemployment and recession, highlighting the Bank of England’s move to halt interest rate increases on Thursday.
The preliminary reading of the Standard & Poor’s Global Purchasing Managers’ Index in Britain for the services sector fell to 47.2 from 49.5 points in August, falling further below the 50 line separating growth from contraction.
The Bank of England and the Treasury monitor this survey closely as it is a highly valuable measure of economic activity. This was the lowest score for the Purchasing Managers’ Index since the pandemic lockdown in January 2021, and lower than all expectations in a Reuters poll of economists’ opinions, which indicated a reading of 49.2 points.
With the exception of the “Covid-19” pandemic, the index last fell to this low level during the global financial crisis, while the index’s employment measure suffered its largest decline ever outside the pandemic period.
Standard & Poor’s Global said that the numbers are consistent with a decline in quarterly economic output of about 0.4 percent. “The disappointing September index survey results mean that a recession looks increasingly likely in the UK,” the chief economist explained.
The survey showed a further decline in inflation pressure on companies, despite widespread reports of strong wage growth.
“The main concern in inflation expectations has been wage growth, but with the survey now pointing to the biggest fall in employment since 2009, bargaining power on wages is rapidly eroding,” Williamson said.
The manufacturing PMI improved in September, to 44.2 from 43.0, but remains mired in contraction territory. The Standard & Poor’s Composite Index for manufacturing and services fell to 46.8 from 48.6 points in August, the lowest reading since January 2021.
“The third quarter is already witnessing significant losses in the economy due to increased costs of living and the recent rapid rise in interest rates,” Williamson said.
Amid this negative picture, British Finance Minister Jeremy Hunt confirms that rising long-term interest rates are putting pressure on the budget and that it is “absolutely impossible” to predict whether there will be room for tax cuts by the time a budget is announced in the spring of 2024.
“The main reason for the pressure on our public finances is the increase in debt interest costs resulting from long-term interest rate expectations,” Hunt told Reuters in a phone interview from Los Angeles on Thursday evening.
Asked whether pressures would ease enough to propose tax cuts in the spring of 2024, Hunt said he did not see anything that would change the situation in the near term, “but I would never be able to predict what will happen in 6 months or 12 months.”
Hunt previously said it would be “almost impossible” to include the tax cuts in his budget update, which is due to be released on November 22, alongside the latest set of independent public finance forecasts.
With Britain’s ruling Conservative Party falling badly in opinion polls ahead of the general elections expected next year, Hunt is under great pressure from his party’s lawmakers to announce tax cuts that would win him votes.
But Hunt’s comments were the strongest indication yet that he had no such plans, saying high interest payments on British debt – driven by rising inflation over the past two years – left him little room to compromise.
“If you look at what we have to pay on our long-term debt, it’s higher now than it was in the spring budget,” Hunt said. “It makes things very difficult, makes tax cuts practically impossible, and quite frankly means I’m going to be faced with another set of decisions.” “Very difficult.” He continued: “If we want to reduce the costs of long-term debt, we must truly commit to this plan to reduce inflation and lower interest rates. I don’t know when that will happen. But I don’t think that will happen before the fall statement.”
2023-09-22 23:05:58
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