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UK's slow growth and rising inflation gives BoE headache - PMIs

Bank of England keeps interest rate unchanged at 0.1%
Bank of England keeps interest rate unchanged at 0.1%   -   Copyright  Thomson Reuters 2021   -  
By Reuters

<div> <p>By Andy Bruce</p> <p><span class="caps">LONDON</span> -Britain’s economy lost more momentum this month as businesses grappled again with rising costs, a survey showed, highlighting the difficult backdrop for Bank of England officials ahead of Thursday’s interest rate decision.</p> <p>The preliminary “flash” <span class="caps">IHS</span> Markit/CIPS flash Composite Purchasing Managers’ Index (<span class="caps">PMI</span>) dropped for a fourth consecutive month in September to its lowest reading since February, slipping to 54.1 from 54.8 in August.</p> <p>A Reuters poll of economists had pointed to a reading of 54.5. The survey, a gauge of health for Britain’s businesses, showed a slowdown in both the services and the manufacturing sectors.</p> <p>The readings, which will have been seen by BoE officials in advance of the central bank’s 1100 <span class="caps">GMT</span> policy announcement, add to signs of fading momentum in the economy just as inflation surges, fuelled by global supply chain problems and rising energy prices.</p> <p><span class="caps">PMI</span> data company <span class="caps">IHS</span> Markit said the figures suggested Britain may be on course for a bout of stagflation – a mixture of poor growth and high inflation associated with the economic malaise of the 1970s.</p> <p>“While the UK <span class="caps">PMI</span>s maybe aren’t the best place to look for guidance on where <span class="caps">GDP</span> is right now, they nevertheless emphasise that the recovery is stalling as we head into winter,” <span class="caps">ING</span> economist James Smith said.</p> <p><span class="caps">IHS</span> Markit said there were clear signs that shortages of materials and labour were holding back growth. The composite <span class="caps">PMI</span> for Britain lagged behind those for France and Germany.</p> <p>The <span class="caps">PMI</span> for the services sector fell to 54.6 in September from 55.0 in August, its lowest level since February when Britain was still in lockdown.</p> <p>Business expectations among services companies fell to a nine-month low and they raised prices on the broadest basis since records started in the mid-1990s.</p> <p>“Brexit was often cited as having exacerbated global pandemic-related supply and labour market constraints, as well as often being blamed on lost export sales,” Chris Williamson, chief business economist at <span class="caps">IHS</span> Markit, said.</p> <p>While the BoE has said it expects the current rise in inflation to be transitory, the increase has put rate-setters under more pressure to explain how they plan to unwind the stimulus launched last year to help the economy through the <span class="caps">COVID</span>-19 pandemic.</p> <p>The <span class="caps">PMI</span> for the manufacturing sector fell to 56.3 in September from 60.3 in August, also marking its lowest level since February.</p> </div>