UK economic activity at six-month low hit by rising interest rates

UK economic activity slowed sharply in July as rising interest rates and a slump in manufacturing took its toll.

The flash UK PMI services output index, a measure of activity in the sector, fell to a six-month low of 51.3, down from 53.7 in June while the manufacturing output index hit a seven-month low of 46.5 (down from 48.1 in June).

This brought the composite index, which combines the two sectors, to a seven-month low of 50.7, down from 52.8 in June.

Chris Williamson, chief business economist at S&P Global Market Intelligence, which publishes the index, said the data showed the UK economy had “come close to stalling”.

“Rising interest rates and the higher cost of living appear to be taking an increased toll on households, dampening a post-pandemic rebound in spending on leisure activities.”

“Forward-looking indicators, such as order book inflows, levels of work-in-hand and future business expectations, all point to growth weakening further in the months ahead, adding to a risk of GDP falling in the third quarter,” he added.

Samuel Tombs at Pantheon Macroeconomics thinks the survey strengthens the case for the MPC to revert to raising Bank Rate by 25bp at next month’s meeting, rather than unleash another 50bp hike.

“The increase in interest rates delivered to date appears to be increasingly slowing the economy,” he commented.