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A fourth successive monthly slowing of business activity has
taken the pace of expansion to its lowest since January's lockdown,
according to the flash PMI for September, while at the same time
average prices charged for goods and services are rising at the
fastest rate in at least 22 years.
The diverging trends of accelerating price rises and slower
output growth will add to speculation as to whether the time is
right for the Bank of England to start scaling back its pandemic
stimulus.
Economy slows for fourth month running
The September PMI data will fuel worries that the UK economy is
heading towards a bout of 'stagflation', with growth trending
sharply lower in recent months while prices continue to leap
higher.
The IHS Markit/CIPS Flash Composite PMI Output Index, covering
both services and manufacturing, fell further in September from its
all-time high in May, down to its lowest since the economy revived
from January's COVID-19 lockdown.
Manufacturing output growth slowed especially sharply, down to
the lowest since February. Service sector growth remained more
resilient, though also waned further during the month to the lowest
since February.
Supply constraints limit business
activity
The fourth-successive monthly slowdown has occurred despite
virus related restrictions being eased in the UK to the lowest
since the pandemic began. However, at the same time virus case
numbers have risen amid the spread of the Delta variant, causing
disruptions to supply chains and the labour market, as employees
have needed to isolate, while also dampening demand.
Thus, while there are clear signs that demand has cooled since
peaking in the second quarter, the survey points to business
activity being increasingly constrained by shortages of raw
materials and labour.
A lack of staff and components were especially widely cited as
key causes of an overall fall in output within the food, drink and
vehicle manufacturing sectors.
Similarly, many hospitality and consumer-facing service
providers reported a slowdown in new order inflows after August's
revival, and were often impeded by a lack of staff or high COVID-19
infection rates, curbing the overall rate of expansion alongside a
broader slowdown which has hit demand for business and financial
services.
Prices rise at record pace
Shortages are meanwhile seen as a key factor driving up prices
at unprecedented rates, as firms pass on higher supplier charges
and increases in staff pay. The flash Composite PMI Prices Charged
Index rose to a level surpassing anything seen since comparable
data on selling prices were available in 1999, accompanied by
another month of near-record input cost inflation.
Brexit adds to pandemic woes
Brexit was often cited as a contributory factor to September's
slowdown, exacerbating global pandemic-related supply and labour
market constraints, as well as subduing demand for exports. Growth
of manufacturing exports slowed and was close to stalling in
September, accompanied by near-stagnant service sector exports.
More than one-in-three manufacturers reporting reduced export
orders explicitly cited Brexit as a contributing factor to the
decline.
Order book data hint at slowdown
Jobs growth meanwhile slowed in September, constrained by worker
shortages but accompanied also by a slowdown of inflows of new
business to a seven-month low. Business expectations for the year
ahead have meanwhile also fallen to their lowest since January,
with concerns over both supply and demand amid the ongoing pandemic
casting a shadow over prospects for the economy as we move into
autumn.
Policy split at the Bank of England
The flash PMI data come at a time when the Bank of England's
Monetary Policy Committee is split on whether the time is right to
start considering tapering its emergency stimulus. The further
acceleration of price growth will add to concerns that the recent
bout of inflation is proving less transitory than many suspected,
but the slowdown in growth is a reminder of the fragility of the
recovery while the pandemic remains a disruptive force on the
economy. The conclusion is likely to be one where policymakers sit
on their hands, awaiting further clarity on the growth and
inflation outlooks.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
