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The UK’s economic recovery slowed towards the end of the third quarter, while price pressures intensified as companies passed on rising wages, transportation and raw material costs, a poll on Thursday found.

The flash or interim composite output index published by the IHS Markit research group and the Chartered Institute of Procurement and Supply fell from 55.3 in August to 54.1 in September, the lowest since the economy began reopening in March . The growth was driven by the service sector, where companies reported rising consumer confidence and an upturn in the business of residences.

But the disruption in the supply chain almost curbed growth in the manufacturing industry: Markit’s production index for the sector fell to 51.8, a level suggesting that only a small majority of firms had seen expansion.

James Smith, an economist at ING, said the survey underscored that “the recovery is stalling before winter,” with rising energy prices, tighter fiscal policies and the potential end-of-holiday impact that would likely mean “a rate hike by the bank of England “is still a long way off”.

Price pressures have risen, although the UK’s post-lockdown recovery has slowed, the survey found. An increasing proportion of companies stated that wholesale prices had risen – citing higher wages, raw material prices and transport costs. The proportion of companies that had raised sales prices rose to the highest level in the 25-year history of the survey.

Chris Williamson, chief economist at IHS Markit, said the data “would heighten concerns that the UK economy is headed for ‘stagflation’ with downward growth as prices keep rising”. There are clear signs that demand is cooling and that activity is being slowed by shortages of materials and labor – particularly in the food, beverage and automotive industries, he added.

Firms in the service sector were still hiring fast and keeping the rate of job creation near the record high in August, but manufacturing employment growth slowed due to lower demand and staff shortages, IHS Markit said.

Economists said the survey gave Bank of England policymakers a reason to wait until the recovery unfolds before raising rates – even as the US Federal Reserve prepares to tighten monetary policy.

Samuel Tombs of consulting firm Pantheon Macroeconomics said the main reason for the slowdown was weak demand, adding that the pace of recovery “is likely to remain sluggish over the winter as higher inflation and benefit cuts weigh on disposable income”.

The UK data paints a similar picture to the Eurozone purchasing manager polls, also published Thursday, which showed supply chain problems are weighing on production and price pressures are mounting.


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