By Andy Bruce
LONDON -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.
The preliminary “flash” IHS Markit/CIPS flash Composite Purchasing Managers’ Index (PMI) dropped for a fourth consecutive month in September to its lowest reading since February, slipping to 54.1 from 54.8 in August.
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.
The readings, which will have been seen by BoE officials in advance of the central bank’s 1100 GMT 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.
PMI data company IHS 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.
“While the UK PMIs maybe aren’t the best place to look for guidance on where GDP is right now, they nevertheless emphasise that the recovery is stalling as we head into winter,” ING economist James Smith said.
IHS Markit said there were clear signs that shortages of materials and labour were holding back growth. The composite PMI for Britain lagged behind those for France and Germany.
The PMI 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.
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.
“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 IHS Markit, said.
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 COVID-19 pandemic.
The PMI for the manufacturing sector fell to 56.3 in September from 60.3 in August, also marking its lowest level since February.