By Jack Barnett
Britain’s all important services economy is stagnating, driven by consumers cutting spending in response to soaring inflation, a closely watched survey out today shows.
S&P Global and the Chartered Institute for Procurement and Supply’s (CIPS) purchasing managers’ index (PMI) fell to 50 last month from 50.9 in August.
The reading means the UK services economy stalled in September. 50 points represents the survey’s threshold separating growth and contraction.
UK services PMI
It is the first time the services PMI has not registered growth in 19 months and came in below the City’s expectations.
The survey underscores the scale of the challenge facing prime minister Liz Truss to lift UK economic growth out of doldrums.
In her speech today at the Conservative Party conference, Truss will present herself as the opponent of an “anti-growth coalition”. She is grappling with an inter-party revolt over plans to cut public spending.
Economists have warned the country is on course for a recession as soon as this winter despite the government’s tax cutting and borrowing splurge.
The weak PMI figures indicate “the economy is drifting towards a recession,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said. He said earlier this week the economy will shrink 1.5 per cent next year, worse than his initial forecast.
Tim Moore, economics director at S&P Global Market Intelligence, said the services industry is suffering from “an absence of growth,” adding “the energy crisis continued to hit business and consumer spending” last month.
Truss and chancellor Kwasi Kwarteng have launched £43bn worth of tax cuts and frozen domestic energy bills at £2,500 for two years in a bid to ward off a long slump triggered by inflation hitting a 40-year high of 9.9 per cent.
This week, the pair were forced to ditch plans to bin the top 45 per cent rate of income tax after Tory grandees said it would not get through parliament.
There was also confusion yesterday over when Kwarteng will set out more detail on the growth package and the Office for Budget Responsibility’s independent assessment of the measures will be published. It is likely to be near the end of this month.
The plans are set to swell the UK’s debt pile, with Cornwall Insights, an energy consultancy, today calculating the energy bill freeze could cost as much as £140bn.
Without the intervention, households were facing the worst living standards shock on record.
Some of Truss and Kwarteng’s tax cuts will not land until next April, meaning the fiscal package may not be enough to avoid a recession.
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