Press release

5 Sep 2022

Latest PMIs point to the economy stalling – EY ITEM Club comments

Although August's UK S&P Global/CIPS services survey signalled further expansion in the economy's biggest sector, growth was marginal, and private sector activity stagnated. Overall, cost and price growth remained strong

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  • Although August's UK S&P Global/CIPS services survey signalled further expansion in the economy's biggest sector, growth was marginal, and private sector activity stagnated. Overall, cost and price growth remained strong.   

  • Under normal circumstances, this combination might give the Bank of England cause to take a more dovish attitude to rate increases. But with the prospective peak for inflation being driven higher by increasing energy prices and the likelihood of a big fiscal support package under a new prime minister, the EY ITEM Club does not anticipate a change in monetary policy currently.   

Martin Beck, chief economic advisor to the EY ITEM Club, says: “Amid a succession of downbeat developments for the UK economy, August's services PMI remained in expansionary territory, which provides some consolation. However, a fourth successive monthly decline in the index - to 50.9 from July's 52.6 - signals a further slowdown in activity growth. Combining the services reading with August's manufacturing survey, the composite PMI of 49.7 was the lowest for 18 months and pointed to the private sector as a whole stagnating.  

“In tandem with August's manufacturing survey, the latest services gauge pointed to a slowdown in input price inflation. However, the move was small, and output price inflation accelerated slightly from July's five-month low. With the Bank of England due to announce its next monetary policy decision on 15 September, the combination of weak activity growth and some better news on inflation could be consistent with a shift in the UK central bank's thinking.  

“The increase in future energy prices over the past couple of weeks point to an even higher inflationary peak than the Bank of England forecast in August. This, combined with the expected package of fiscal support to households and firms means that overall, the EY ITEM Club does not anticipate the Bank of England deviating from its rate rise path just yet.”