London Daily

Focus on the big picture.
Wednesday, Aug 19, 2026

Cost of living: UK economy edges closer to stagnation with factory slump

Cost of living: UK economy edges closer to stagnation with factory slump

A deepening downturn in manufacturing output is only just offset by modest expansion of the larger services sector, but Britain still performs better than the eurozone which fell further into recession territory as higher energy costs squeezed consumer spending.

UK private sector growth has moved closer to stagnation as it slowed to a new 18-month low, dragged down by a slump in factory output, latest data indicates.

The closely watched S&P Global/CIPS Purchasing Managers' Index (PMI) composite flash estimate dropped to 50.9 in August from 52.1 in July, its lowest since February 2021 and close to the 50 level that separates growth from contraction.

Economists had forecast the index would fall less sharply to 51.1.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said: "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."

The slowdown in overall growth was largely driven by a sharper slump in manufacturing output from UK factories.

The manufacturing sector reported monthly output of 42.4, representing the steepest fall for more than two years.

Firms reported "reduced customer demand, the delayed delivery of inputs and labour shortages" for the month.

Separate figures from the Confederation of British Industry, also released on Tuesday, showed the first fall in factory output since February 2021 and the weakest order book since April that year.

Meanwhile, the larger services sector saw only modest expansion, with a 52.5 measure for August.

John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS), said: "Service companies had a better month, but only marginally as new order levels were sustained and optimism remained that customers would continue to buy throughout the year.

"However, this may reverse quite quickly.

"There are many concerns keeping private sector business owners awake at night, such as disruptions to supply chains from war, the highest inflation in the UK for almost 50 years, the impact of higher interest rates and now port disruptions in the UK, to name a few."

Nevertheless, companies signalled a further easing in the rate of cost inflation.

Manufacturers reported the rate of their cost inflation slowed to the lowest since November 2020 as commodities such as metals came down in value, although a continued tight labour market pushed up services companies' costs slightly.

Britain's composite PMI, covering manufacturing and services, exceeded that for the eurozone which fell further into recession territory as higher energy costs - caused largely by Russia's invasion of Ukraine - squeezed consumer spending.

The Bank of England has warned that Britain too is likely to slip into a recession at the end of 2022 which will last until 2024 as energy bills are expected to push consumer price inflation above 13% in October, having already hit a 40-year high of 10.1% in July.

Economists at Citi forecast on Monday that inflation would exceed 18% in January when the energy price cap is due to rise again.

HSBC said the latest figures sent mixed messages to the central bank for its decision next month on whether to raise interest rates by another half a percentage point, after it did so for the first time since 1995 earlier this month.

HSBC economist Elizabeth Martins said: "The fall in manufacturing is ammunition for the doves, as are the trends in pricing.

"But strong demand, employment and staff costs in the sector that accounts for 80% of GDP - services - also looks hawkish."

Newsletter

Related Articles

0:00
0:00
Close
A Sleepless Night on Wall Street: Nasdaq to Begin Nearly Round-the-Clock Trading
"The First in the World": 69-Year-Old Protested Artificial Intelligence—and Went to Jail
Ukraine's Ousted Defence Minister Calls for Wartime Presidential Election
UK Marks Ten Years of Night Tube as London Weekend Usage Exceeds Eighty-One Thousand Journeys a Night
Met Office Issues Thunderstorm Warnings Across Northern Ireland Over Flash-Flood Risk
Frasers Group Raises Stake in Hugo Boss to Nearly Forty-Eight Percent
Scottish Clyde Marine Pilots Prepare for Strike That Could Disrupt Glasgow and Greenock Shipping
Twenty Passengers Injured After Southern Train Derails Near Lewes in East Sussex
Government Rules Out High-Speed Rail Revival Between West Midlands and Northern England
West Midlands Bus Network Returns to Public Ownership in Twenty-Four Million Pound Deal
UK Competition Watchdog Targets Trainline, Virgin Atlantic and RED Driving School Over Drip Pricing
Northern Ireland Health Minister Mike Nesbitt Resigns After Dispute Over Causeway Hospital Surgery Closure
UK Long-Term Government Bond Yields Rise to Five Point Eight Five Percent as Borrowing Costs Surge
UK Government Overhauls Planning Rules to Push Housing Development Near Major Transport Hubs
UK Health and Economic Pressures Highlight Wider Strain on Households and Public Finances
UK Prime Minister Andy Burnham Reaffirms Full Support for Ukraine Amid Russian Warnings
Sainsbury’s Suspends Live Facial Recognition at London Store After Customer Misidentified
Artists Urge UK Prime Minister Andy Burnham to Reject New North Sea Oil and Gas Licensing
UK Government Awards Four Hundred and Fifty-Six Million Pound Civil Service Training Contract to EY and KPMG
Global Government Bond Yields Rise as Middle East Conflict Fuels Inflation Concerns
British Housing Market Records Weakest August Since Two Thousand and Eighteen as Asking Prices Fall
UK Announces New Sanctions on Russian Shadow Fleet and Financial Institutions
UK Approves Virgin Rail Group Services Through Channel Tunnel, Challenging Eurostar
UK Government Backs Three Hundred Million Pound AI Investment Zone in North Lanarkshire
UK Declares National Salmonella Outbreak Linked to Imported Eggs
China’s Lifelike AI Humans Move From Livestreams Into Real-World Service Roles
UK Government Rolls Out £5.8 Billion Regional Investment Programme to Revive High Streets
AstraZeneca Ends Late-Stage Lung Cancer Trial After Data Shows No Survival Benefit
London Stocks Fall for Sixth Day as Bond Yields and Middle East Tensions Weigh on Markets
UK Government Rewrites Planning Rules to Accelerate Housing Near Transport Hubs
UK Wildfires Spread Across Southern England as Met Office Issues Severe Heat Warnings
British Doctors Warn Cancer Care Is at Risk as Hospitals Reject More Than a Quarter of Urgent Referrals
UK Hospitals Suspend Critical Care as Extreme Heat Exposes Infrastructure Failures
Sarah Ferguson Reportedly Retreats to Late Ex-Boyfriend's Swiss Chalet
Cristiano Ronaldo and Georgina Rodríguez Sign Prenup Protecting Their Separate Fortunes
Thieves Steal Antonello da Messina Renaissance Masterpieces From Sicilian Museum
Better.com Founder Who Fired 900 Employees on Zoom Is Ousted as CEO
Italian Speed Camera Issues Nearly 32,000 Fines in 10 Weeks, Worth More Than €3 Million
AI Manager at San Francisco Store Recommends Firing Human Employee
Google Launches Pixel 11 With Gemini AI at the Center of Its Hardware Strategy
Campaigners Press Government to Strengthen Rights for Four Million Gig Workers
Government Considers Higher Private Rents to Spread Asylum Accommodation Across UK
UK Moves to Protect Historic Pubs From Conversion Into Housing and Offices
Nigel Farage Wins Clacton By-Election to Return to House of Commons
British Manufacturers Report Rising Cybersecurity Threats Across Industrial Supply Chains
Royal Navy Increases Monitoring of Russian Ships in UK Waters by 25 Percent
England Adds More Than 350 Medical Training Posts to Strengthen NHS Capacity
NHS Waiting Lists Over 52 Weeks Rise by More Than 11,000 Patients
Brent Crude Near $88 Raises Fresh UK Energy Cost Concerns
UK Treasury Warns Prolonged Strait of Hormuz Disruption Could Cut 2027 Growth to 0.3 Percent
×