Economic Indicators

Govt Crisis, Inflation Push U.K. Economy Further Into Contraction in October



 

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By Geoffrey Smith

Investing.com — Sky-high inflation and a spiraling political crisis pushed the U.K. economy deeper into trouble in October, according to a closely-watched survey released on Monday.

S&P Global’s composite purchasing managers index fell by more than expected to 47.2, its lowest level since March 2021, after an ill-judged attempt to cut taxes by then-Prime Minister Liz Truss hurt the pound and in U.K. bond markets, pushing up market interest rates. Truss resigned last week, unable to ride out the crisis her policies had triggered.

«Intense inflationary pressures, escalating political uncertainty and rising interest rates were the most commonly cited reasons for downbeat sentiment in October,» S&P said.

The manufacturing PMI fell from 48.4 to 45.8, its lowest since June 2020, while the services PMI fell from 50 to 47.5. Any figure below 50 typically reflects a contraction in activity, and all three PMIs were well below consensus forecasts. New orders to manufacturers fell particularly sharply, suggesting that the ongoing slowdown still has further to run.

Inflation, which has hit a series of 40-year highs this year, remained the overriding concern. However, S&P pointed to a glimmer of hope on the horizon, saying that overall input cost inflation eased to its lowest in a year, as lower freight rates and falling commodity prices offset surging energy bills and higher wages for staff.

Despite the gloomy news, U.K. markets were in a broadly positive frame of mind on Monday, as Boris Johnson’s decision to call off a mooted comeback as Prime Minister raised the likelihood of a quick and decisive end to the Conservative Party’s latest leadership contest.

Johnson’s former finance chief Rishi Sunak, who as Chancellor of the Exchequer had raised taxes substantially to cover the cost of the government’s increased spending, is now the overwhelming favorite to secure the leadership, having received the backing of over half of the party’s lawmakers in the House of Commons. His only remaining declared rival, Penny Mordaunt, is widely expected to withdraw from the race later Monday.

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