London Daily

Focus on the big picture.
Saturday, Oct 18, 2025

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
S&P Downgrades France’s Credit Rating, Citing Soaring Debt and Political Instability
Ofcom Rules BBC’s Gaza Documentary ‘Materially Misleading’ Over Narrator’s Hamas Ties
Diane Keaton’s Cause of Death Revealed as Pneumonia, Family Confirms
Former Lostprophets Frontman Ian Watkins Stabbed to Death in British Prison
"The Tsunami Is Coming, and It’s Massive": The World’s Richest Man Unveils a New AI Vision
Outsider, Heroine, Trailblazer: Diane Keaton Was Always a Little Strange — and Forever One of a Kind
Dramatic Development in the Death of 'Mango' Founder: Billionaire's Son Suspected of Murder
Two Years of Darkness: The Harrowing Testimonies of Israeli Hostages Emerging From Gaza Captivity
EU Moves to Use Frozen Russian Assets to Buy U.S. Weapons for Ukraine
Europe Emerges as the Biggest Casualty in U.S.-China Rare Earth Rivalry
HSBC Confronts Strategic Crossroads as NAB Seeks Only Retail Arm in Australia Exit
U.S. Chamber Sues Trump Over $100,000 H-1B Visa Fee
Shenzhen Expo Spotlights China’s Quantum Step in Semiconductor Self-Reliance
China Accelerates to the Forefront in Global Nuclear Fusion Race
Yachts, Private Jets, and a Picasso Painting: Exposed as 'One of the Largest Frauds in History'
Australia’s Wedgetail Spies Aid NATO Response as Russian MiGs Breach Estonian Airspace
McGowan Urges Chalmers to Cut Spending Over Tax Hike to Close $20 Billion Budget Gap
Victoria Orders Review of Transgender Prison Placement Amid Safety Concerns for Female Inmates
U.S. Treasury Mobilises New $20 Billion Debt Facility to Stabilise Argentina
French Business Leaders Decry Budget as Macron’s Pro-Enterprise Promise Undermined
Trump Claims Modi Pledged India Would End Russian Oil Imports Amid U.S. Tariff Pressure
Surging AI Startup Valuations Fuel Bubble Concerns Among Top Investors
Australian Punter Archie Wilson Tears Up During Nebraska Press Conference, Sparking Conversation on Male Vulnerability
Australia Confirms U.S. Access to Upgraded Submarine Shipyard Under AUKUS Deal
“Firepower” Promised for Ukraine as NATO Ministers Meet — But U.S. Tomahawks Remain Undecided
Brands Confront New Dilemma as Extremists Adopt Fashion Labels
The Sydney Sweeney and Jeans Storm: “The Outcome Surpassed Our Wildest Dreams”
Erika Kirk Delivers Moving Tribute at White House as Trump Awards Charlie Presidential Medal of Freedom
British Food Influencer ‘Big John’ Detained in Australia After Visa Dispute
ScamBodia: The Chinese Fraud Empire Shielded by Cambodia’s Ruling Elite
French PM Suspends Macron’s Pension Reform Until After 2027 in Bid to Stabilize Government
Orange, Bouygues and Free Make €17 Billion Bid for Drahi’s Altice France Telecom Assets
Dutch Government Seizes Chipmaker After U.S. Presses for Removal of Chinese CEO
Bessent Accuses China of Dragging Down Global Economy Amid New Trade Curbs
U.S. Revokes Visas of Foreign Nationals Who ‘Celebrated’ Charlie Kirk’s Assassination
AI and Cybersecurity at Forefront as GITEX Global 2025 Kicks Off in Dubai
DJI Loses Appeal to Remove Pentagon’s ‘Chinese Military Company’ Label
EU Deploys New Biometric Entry/Exit System: What Non-EU Travelers Must Know
Australian Prime Minister’s Private Number Exposed Through AI Contact Scraper
Ex-Microsoft Engineer Confirms Famous Windows XP Key Was Leaked Corporate License, Not a Hack
China’s lesson for the US: it takes more than chips to win the AI race
Australia Faces Demographic Risk as Fertility Falls to Record Low
California County Reinstates Mask Mandate in Health Facilities as Respiratory Illness Risk Rises
Israel and Hamas Agree to First Phase of Trump-Brokered Gaza Truce, Hostages to Be Freed
French Political Turmoil Elevates Marine Le Pen as Rassemblement National Poised for Power
China Unveils Sweeping Rare Earth Export Controls to Shield ‘National Security’
The Davos Set in Decline: Why the World Economic Forum’s Power Must Be Challenged
France: Less Than a Month After His Appointment, the New French Prime Minister Resigns
Hungarian Prime Minister Viktor Orbán stated that Hungary will not adopt the euro because the European Union is falling apart.
Sarah Mullally Becomes First Woman Appointed Archbishop of Canterbury
×