UK private sector output hit by inflation and Ukraine war

·Business Reporter, Yahoo Finance UK
·3 min read
A waiter wears a face shield as women are seen in an outdoor seating at a restaurant in London, UK
The UK service sector suffered a big loss of momentum as the pass-through of escalating costs offset the boost to consumer spending from the ending of COVID-19 restrictions. Photo: Reuters/Hannah McKay

Record inflationary pressures and the ongoing war in Ukraine knocked demand in the UK private sector in April, new data has shown.

According to the flash business surveys from S&P Global, the PMI composite output index came in at 57.6, down from 60.9 in March. However, this was still above the 50 reading, which indicates growth.

The slowdown was mainly driven by the smallest rise in new orders so far this year. Survey respondents said the cost-of-living crisis and uncertainty sparked by the Ukraine war had hurt client demand.

The service sector suffered a big loss of momentum, dropping materially from March’s 10-month high, as the pass-through of escalating costs offset the boost to consumer spending from the ending of COVID-19 restrictions.

Meanwhile manufacturers were hit by the factory gate prices rising by the fastest on record.

Read more: UK consumer confidence crashes to near record low

Goods producers also suggested that efforts to work through backlogs and fewer supplier delays were the main positive influences on production schedules, the survey showed.

The overall rate of new business expansion eased to its weakest in 2022 to date, with both manufacturers and service providers recording slower recoveries in order books.

The slowdown also caused firms to slow their pace of hiring; the employment index fell to 55.8, its lowest level since April 2021, from 58.4 in March.

The rate of job creation slipped to a 12-month low, driven by a slowdown in hiring across the service economy.

Businesses mostly commented on difficulties finding candidates to replace departing staff, but there were also some reports linking the slow.

Read more: UK retailers to be hit by 'tsunami of costs', think tank warns

“The survey data signal a marked cooling in the pace of UK economic growth during April, caused by an abrupt slowing in demand,” Chris Williamson, chief business economist at S&P Global said.

“Although the current pace of growth remains relatively robust, firms are taking a more cautious approach to hiring and spending as demands cools and the outlook becomes gloomier, to suggest that the slowdown in the economy has further to run.

“While the start of the year saw businesses in high spirits amid the reopening of the economy, this ebullient mood is being eroded by concerns about the rising cost of living, the Russia-Ukraine war, lingering pandemic disruptions and rising interest rates.”

It came as growth in the eurozone surged to a seven-month high in April thanks to rebound in services demand as COVID measures eased, but prices rose at a record rate.

The S&P Global Composite PMI rose to 55.8 this month from 54.9 in March – the strongest rate of expansion since last September.

Watch: How does inflation affect interest rates?

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