Factories Impacted Most By UK Slowdown As Sterling Struggles

The British pound fell to its lowest since mid-July against the dollar yesterday as soaring energy and a summer of strikes highlighted the UK cost of living crisis and intensified fears for more economic slowdown.

last Friday, amid worries around Britain’s hot inflation and declining economy, the sterling recorded its biggest weekly fall against the US dollar since September 2020.

Weaker demand as well as higher costs, labour shortages and supply bottlenecks are together sinking the UK’s manufacturing output to the lowest level since start of Covid-19 pandemic. manufacturers continue to operate against a background of high input costs and significant operational delays. When coupled with an oncoming economic downturn, it is not surprising to see orders and activity ebb away as we move through the year.

Against a weakening euro, sterling held at 84.82 pence, edging 0.1% higher on the day, after falling to a near four-week low against the single currency on Aug. 19.

The weak UK growth outlook continues to weigh on the pound. News that Ofgem is set to announce on Friday that UK average annual household energy bills are likely to rise to more than 3,500 pounds ($4,128.60) reinforces the headwinds facing consumers.

The decline from 48.9 to 42.4 between July and August was the quickest since the global financial crisis in 2009. A reading below 50 indicates contraction rather than expansion.

Modest growth in the UK’s much bigger service sector prevented the overall measure of private-sector activity dipping below 50, but the drop from 52.1 to 50.9 left the composite index at its weakest in 18 months. The eurozone’s overall PMI fell from 49.9 to 49.2 in August, also the lowest in 18 months.

The UK private sector moved closer to stagnation in August, as mild growth of activity across the service sector only just offset a deepening downturn at manufacturers. Waning customer demand amid the weaker economic outlook, and shortages of both staff and inputs, were reported to have hit goods producers hard, with firms registering the quickest drops in output and new work since May 2020.

Excluding the initial phase of the pandemic in early 2020, the reduction in manufacturing output was the quickest seen since the start of 2009. Meanwhile, the service sector registered the weakest increase in activity since the recovery began in early 2021.

The CBI’s industrial trends survey showed that in the latest three months manufacturers’ order books shrank and output fell for the first time since February 2021. The employers’ lobby group said the mood in industry had become gloomier in recent months amid expectations that there would be no pickup in output in the months ahead.

In addition to rising energy bills, manufacturers are also braced for further increases in interest rates from the Bank of England. Official borrowing costs, currently at 1.75%, are expected to reach 4% by next spring.