London Daily

Focus on the big picture.
Thursday, Jun 18, 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
Health Authorities Warn of Rising Cases of Seasonal Respiratory Illnesses
BAE Systems and Rolls-Royce Advance Multi-Nation Fighter Aircraft Programme
National Archives Publish Declassified Documents on Cold War Energy Security Planning
British Retail Spending Rises Despite Continuing Cost-of-Living Pressures
Wales Launches Social Housing Pilot to Address Affordability Pressures
British Energy Companies Commit £5 Billion to Geothermal and Hydrogen Projects
Northern Ireland Debates Cross-Border Healthcare Partnership With the Republic of Ireland
UK Establishes National Artificial Intelligence Safety Centre With Leading Universities
UK Reports Decline in Small Boat Crossings After Expanding Intelligence Cooperation With France
Scottish Parliament Launches Inquiry Into Delays to Renewable Energy Projects
National Crime Agency Dismantles Alleged Multi-Million-Pound Money Laundering Network in London
Transport Strikes Disrupt Rail and Bus Services Across Northern England
United Kingdom and European Union Open New Security Dialogue on Defense and Border Cooperation
Bank of England Holds Interest Rates at 5% as Services Inflation Remains Elevated
UK Government Unveils Major National Health Service Reform Focused on Decentralization and Performance Funding
Government Advances New Airport Slot Rules to Ease Airline Operating Constraints
BBC Opens Flagship Science-Fiction Franchise to Competitive Production Bids
Chancellor Meets City Leaders Amid Concerns Over Gilt Market Liquidity
Rathbones Shares Fall Seventeen Percent After Regulatory Review Reveals Compliance Failings
United Kingdom Joins Group of Seven Initiative Using Artificial Intelligence and Quantum Computing for Cancer Research
Parliament Debates Doubling Tax Allowance for Pensioners After Major Public Petition
Measles Cases Exceed Seven Hundred in London and the West Midlands
British Military Leadership Faces Parliamentary Scrutiny After Defence Secretary's Sudden Resignation
House of Lords Begins Debate on Steel Industry Nationalisation Legislation
Parliament Advances Bill to Abolish NHS England and Create Single Patient Records
Parliament Fast-Tracks National Security Bill to Expand Powers Against Foreign Threats
United Kingdom and European Union Set July Summit to Deepen Post-Brexit Cooperation
United Kingdom Imposes Seventy New Sanctions on Russia and Expands Support for Ukraine's Nuclear Sector
United Kingdom Announces Social Media Ban for Children Under Sixteen
0British Government Investigates Reports of Russian Warship Firing Warning Shots Near Isle of Wight
UK Supreme Court Revises Legal Definition of Deprivation of Liberty
King’s Birthday Honours Recognise Contributions Across Science, Culture and Public Service
UK Ministry of Defence Reports Interdiction of Russian Shadow Fleet Vessel
UK and US Launch Joint Regulatory Programme for Medicines and Healthcare Products
Solicitor General Refers Murder Sentence to Court of Appeal Under Unduly Lenient Scheme
UK Launches £1.6 Million Mobile Museum Initiative to Expand Cultural Access
Judicial Pay Structure Undergoes Government Review Following Senior Recommendations
Government Confirms Nearly 180 New Youth Hubs Across the United Kingdom
UK Government Expands Careers Support Through Partnership with LinkedIn
Digital News Report Highlights Growing Global Concern Over AI and Information Overload
UK Chancellor Reaffirms Fiscal Discipline and Borrowing Reduction Strategy
UK Government Invests £219 Million in Sustainable Aviation Fuel Development
Rolls-Royce Small Modular Reactors Secures Major Swedish Export Contract
Government Confirms Locations for Nearly 180 Youth Hubs Across Great Britain
UK Government Partners with LinkedIn to Expand Employment Support Services
Reuters Institute Report Flags Rising Public Anxiety Over News and Information Overload
UK Government Commits £219 Million to Expand Sustainable Aviation Fuel Industry
Chancellor Convenes Market Engagement Group to Assess UK Economic Outlook and Productivity Risks
Rolls-Royce Wins Multibillion-Pound Swedish Contract for Small Modular Nuclear Reactors
Government to Ban Social Media Access for Under-Sixteens Across the United Kingdom
×