Growth in the UK business sector last month looked stronger than expected. However, there are signs that inflation will continue to impact new orders and raise concerns over a recession based on a survey released on Tuesday.
The composite S&P Global/CIPS Purchasing Managers Index, comprising services and manufacturing firms, reported a slight increase from its early June reading of 53.1 to 53.7 and at the same time it was also higher than May which recorded a reading of 53.1.
The PMI reading for the services sector also increased to 54.3 from an “initial” reading of 53.4. According to Tim Moore, director of economics at S&P Global, "the services sector remained in an expansionary phase during the month, but continued high inflation has begun to weigh on spending and negatively affect demand projections."
On the other hand, most firms stated that they plan to pursue further price increases in the second half of 2022. Bank of England Governor Andrew Bailey said last week that there were clear signs of a slowing economy although the central bank was still prepared to act forcibly ”if necessary to curb the inflation rate is heading towards 11%.
On the other hand, the Bank of England warned on Tuesday that the economic outlook for Britain and the world has been ‘vague’ since the beginning of the year and told banks to prepare for a storm of ‘economic recession’.
International institutions, such as the International Monetary Fund and the OECD say Britain is more vulnerable to recession and persistently high inflation than other Western economies.
Nevertheless, according to the BOE, British banks are in a good position to face the economic downturn. The BoE said British banks were resilient to weak debt payments among households and businesses amid worsening cost of living problems.
Members of the Monetary Policy Committee confirmed that the BoE will double the cyclical capital buffer rate to 2% of risk -weighted assets by July next year. The BoE is now preparing for the coming obstacles.
