Economy stalls but UK still just about growing...

JACK BARNETT

THE UK ECONOMY narrowly avoided slipping into contraction territory in July, with a closely-watched index suggesting interest rate hikes are beginning to dampen demand.

The composite purchasing managers’ index (PMI) compiled by S&P Global Market Intelligence fell to 50.7 this month, from near to 53 in June, with 50 representing the distinction between growth and shrinkage.

“The UK economy has come close to stalling in July which, combined with gloomy forward-looking indicators, reignites recession worries,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.

The Bank of England has lifted rates 13 times in a row to five per cent, while inflation has reached multi-decade highs over the past year. The Bank is expected to back three more rate increases, taking them to a peak of 5.75 per cent.

The index suggested the weakest rise in UK private sector output in six months.

The services index sat at 51.5, down from 53.7 the month before, whilst both manufacturing indices –one measuring output and the other measuring sales –were both firmly in the mid-40s.

Total new export orders decreased at the steepest pace since November 2022, reflecting weaker trends in both the manufacturing and service sectors.

Some analysts suggested the numbers should give the Bank’s ratesetters pause. Many regard the PMI readings as a better barometer of economic health than the official GDP figures.

Samuel Tombs (pictured), chief economist at Pantheon Economics, suggested the readings would bolster the case for the Monetary Policy Committee to stop its rate-hiking cycle soon.

“The increase in interest rates delivered to date appears to be increasingly slowing the economy; the composite index fell to its lowest level since January, and to a level consistent with GDP merely holding steady,” he said.

“The drop in the composite orders index to 50.0, from 51.6 in June, suggests that the trend will not improve soon.” to become residential is “nothing new”.

Gove also announced reforms of the planning system and rounds of investment to get through the backlog.

He pledged to simplify and speed up the process of updating local plans for new builds, and to invest in “quality planning” with £24m of new investment.

The UK’s housing crisis has been fuelled by a lack of supply, especially in the number of council and affordable homes.