According to a survey released a day after the Bank of England unexpectedly increased interest rates and signalled that it was prepared to take other steps to slow price growth, although Britain’s economy showed signs of slowing down this month, inflation pressures remained high.

A preliminary reading released on Friday revealed that S&P Global’s Composite Purchasing Managers’ Index (PMI), which measures companies in the manufacturing and service sectors, fell to a three-month low of 52.8 in June from 54.0 in May due to weaker-than-expected growth in new orders as factories struggled.

The study, according to Chris Williamson, chief business economist at S&P Global Market Intelligence, indicated that the economy had lost momentum following a brief growth spike in the spring and appeared destined to deteriorate even more in the months to come.

“Most notably, consumer spending on services, which was a core growth driver in the spring, is now showing signs of faltering,” he said, blaming higher interest rates, strong inflation and worries about the outlook.

According to the ‘flash’ or preliminary survey, manufacturing shrank more than expected and services increased at the slowest rate in three months in Britain.

The fastest hiring increase since September of last year was one exception to the slowdown, driving up wages and adding to the inflation pressures in the service sector, which are of particular concern to the BoE.

As part of its efforts to combat inflation, which remained at 8.7% in May, the BoE is anticipated to keep hiking borrowing prices.

“However, such rate hikes will clearly add further to the likelihood of a recession later in the year, which is looking increasingly inevitable as collateral damage in the fight against inflation,” Williamson said.

On Thursday, the BoE increased interest rates for the thirteenth consecutive time, bringing the Bank Rate from 0.1% at the end of 2021 to 5.0% today.

The PMI survey revealed that services firms raised their pricing this month, albeit slightly less dramatically than in May. Manufacturers, on the other hand, reduced their pricing for the first time in more than seven years.

The level of confidence in future output dropped down to its lowest level since January as businesses in both the manufacturing and services sectors were a little less upbeat about their prospects over the coming 12 months.

(Adapted from BusinessTimes.com.sg)

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