Political chaos tips British firms into deeper slide

© Stocksak. FILE PHOTO: Shoppers stand next to the clubcard price branding in a Tesco Extra Supermarket branch in London, Britain, February 10, 20,22. Picture taken February 10, 20,22. REUTERS/Paul Childs

LONDON, (Stocksak). British businesses are suffering the worst month since January 2021, when their COVID-19 lockdown was in effect. The country’s political upheavals have compounded concerns about rising interest rate and inflation, according a Monday survey.

The S&P Global/CIPS flash Composite Purchasing Managers’ Index (PMI) showed a contraction in activity for a third month in a row, sinking to a 21-month low of 47.2 from September’s 49.1 and signalling Britain’s economy could be on course for a potentially deep recession.

Stocksak polled economists and they expected a reading between 48.1 and 48.1.

The PMI for the services sector contracted for the first-time in 20 months, dropping to 47.5 from the September 50.0 level.

Political and economic uncertainty pushed overall activity down at a pace unseen since the global financial crisis in 2009, excluding pandemic lockdown periods, Chris Williamson, chief business economist at S&P Global (NYSE:) Market Intelligence, said.

Other countries are also facing rising energy prices. German business activity fell faster than in Britain, but France did better than either.

According to Martin Beck (chief economic adviser to EY ITEM Club consultancy), the British figures suggest that the Bank of England will increase interest rates by 0.75 percentagepoint on Nov. 3. This is less than the full point some investors had expected.

Beck stated, “More evidences of economic weakness, together with signs that less heated inflationary pressures, should, at all other equal, ton down the (BoE’s) appetite for raising interest rates substantially in November.”

British business confidence also dropped to levels not seen in the survey’s 25-year history. This shows the impact of chaotic times after Liz Truss’s government announced late September unfunded tax reductions that triggered a bond rout.

Truss said that she will resign as soon as her successor has been chosen at the close of this week.

Williamson stated, “As night follows daylight, investment and employment are likely to suffer in the months ahead while companies adjust their environment to the increasingly difficult environment.” “Hiring is already slowing dramatically, with manufacturing even shedding workers.”

Although price pressures have weakened, the drop in the value of sterling and high energy costs meant that input cost inflation was still higher then at any time before the pandemic. The Bank of England was likely to keep raising interest rates, he stated.

Williamson stated that “on top of the collapse of political stability, financial markets stress, and slump in confidence these higher borrowing costs will contribute to speculation of an alarmingly deep UK recession.”

The pace at which new orders fell was the fastest since January 2021.

Jeremy Hunt, the new British finance minister, will announce a medium term budget plan on October 31. It is likely to include spending cuts as well as tax increases that could worsen the recession.

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