UK economy slows as demand falls in August

UK economy braces for recession as growth slows.  Photo: PA

UK economy braces for recession as growth slows. Photo: PA

Output growth in most sectors in the UK slowed last month as demand slowed and input cost inflation eased.

According to the latest Lloyds Bank UK Sector Tracker, the number of UK sectors reporting contraction in demand rose for the fourth straight month in August.

Slower rises in material and logistics costs helped bring headline input cost inflation (76.6 versus 78.4 in July) to its slowest pace since September 2021, the tracker showed.

However, reports of energy and wage bill inflation remained near record highs.

Of the 14 sectors monitored, 11 saw a fall in demand, represented by new orders – one more than in July and the highest number since June 2020.

Tourism and recreation, which includes pubs, hotels, restaurants and leisure facilities, saw the fastest fall in demand to 38.0 from 42.3 in July as consumers continued to rein in discretionary spending.

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Each of the sectors where new orders contracted also saw production fall (11 of 14 sectors in August versus nine in July).

Technology equipment manufacturers (58.1 on the tracker’s demand gauge versus 52.4 in July), providers of software services (57.8 versus 58.0) and metals & mining companies (51.0 versus 34.3) were the only sectors , which increased both demand and production .

Scott Barton, Managing Director, Lloyds Bank Corporate and Institutional Banking, said: “The cost of doing business remains extremely high and businesses continue to face a significant period of uncertainty.

“Reduced pressure in the supply chain is positive news for companies that is helping to address one of the challenges they are facing and should allow them to free up working capital that they might otherwise have been tied up in inventory.

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“This should allow organizations to benefit more from the flexibility and agility to respond to whatever lies ahead. Healthy cash flow and strong working capital management will be key – ensuring management teams can deploy funds when needed to capitalize on new opportunities and continue to trade, even in slower periods.”

Continue reading: What can we expect from Kwasi Kwarteng’s mini-budget next week

British Chancellor Kwasi Kwarteng is set to present a mini-budget this week detailing how to help households and businesses amid the cost of living crisis.

Earlier this month, Liz Truss, in her first major policy intervention since taking office as Prime Minister, announced an energy price guarantee to freeze bills at £2,500 from October until 2024.

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Truss also announced a six-month energy support program for businesses, schools and hospitals, and the companies are expecting Kwarteng to outline the details of how the plan will be funded.

UK inflation currently stands at 9.9% over the last month – the highest in the G7 group of leading economies – and almost five times the Bank of England’s target of 2%.

Jeavon Lolay, Head of Economics and Market Insight at Lloyds Bank Corporate and Institutional Banking said: “While the government’s energy stimulus package represents a crucial intervention for households and businesses, it is too early to say whether this will reverse the general trend in the economy.

“However, it should have a significant impact on UK inflation, with the likely peak later this year now estimated closer to the current 10% rate than the much higher double-digit rates expected for next year.”

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