UK economy on course to shrink
Britain's economy looks on course to shrink during the current quarter and risks falling into a recession, as a survey on Wednesday showed a slump in factory output and broader weakness in the face of higher interest rates.
The S&P Global/CIPS composite Purchasing Managers' Index (PMI) tumbled to 47.9 in August from 50.8 in July, according to a preliminary estimate which was below all forecasts in a Reuters poll of economists.
The reading was the lowest since January 2021, when Britain was in a Covid-19 lockdown, and the first fall below the 50 level which divides growth from contraction since January this year.
Britain's economy - struggling with high inflation as well as the after-effects of the coronavirus pandemic and Brexit - last shrank in the third quarter of 2022, when many businesses closed to mark Queen Elizabeth's funeral. Since then it has defied widespread forecasts of recession but has grown slowly.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the PMI pointed to a 0.2 percent fall in overall economic output during the three months to the end of September.
"The fight against inflation is carrying a heavy cost in terms of heightened recession risks," he said.
The eurozone composite PMI also came in below all economists' forecasts at 47.0, down from 48.6 in July. Sterling fell against the dollar and the euro and British government bond yields headed for their biggest daily fall in more than a month as investors scaled back expectations for further interest rate rises.
The Bank of England has raised rates 14 times since December 2021, taking them to a 15-year high of 5.25 percent. Financial markets still expect a further rate rise to 5.5 percent in September, but now expect rates to peak at 5.75 percent rather than 6 percent.
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