London Daily

Focus on the big picture.
Friday, Oct 02, 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
UK Councils to Receive Sweeping Planning Powers to Ban New Vape and Betting Shops
Chancellor John Healey Faces Tax and Pension Scrutiny Ahead of Autumn Budget
Metropolitan Police Apologise for Accidental Disclosure in High-Profile Investigation
UK Universities Report Record International Enrolment as Housing Pressure Grows
UK Logistics Firms Monitor Rhine Disruption as Low Water Threatens European Supply Chains
UK Food Industry Warns Inflation Could Approach 7%
UK Introduces Vaping Duty and Mandatory Retail Stamps
Scotland Raises Property Taxes and Expands Child Payment in Annual Budget
Greggs Plans Four Factory Closures With 740 Jobs at Risk
OECD Raises UK 2026 Growth Forecast to 1.1%
UK Inflation Rises to 3.1% as Bank of England Faces Rate Debate
Andy Burnham Criticises Brexit and Says Rejoining EU Single Market Remains an Option
UK Imposes New Sanctions on Russian Military Networks and Propagandists
UK Launches Nationwide Early-Release Prison Scheme
Andy Burnham Says Security Services See Signs of Iranian Involvement in RAF Fairford Incident
Manchester City Found Guilty on Premier League Financial Charges After Independent Investigation
Scottish Court to Rule on Bid to Force No-Confidence Vote Against Aberdeen Council Co-Leader
UK Bans Extra Charges for Seating Children Under 12 Beside Accompanying Adults
UK Introduces Vaping Duty and New Licensing Requirements
Greggs to Close Four UK Factories and Cut 740 Jobs
Hundreds of Prisoners Released Early as England and Wales Prisons Reach 98% Capacity
UK Unveils New Russia Sanctions Targeting War Funding and Shadow Fleet
Burnham Says There Are Strong Indications of Iranian Involvement in RAF Fairford Security Breach
Prime Minister Andy Burnham Raises Prospect of Reviewing Britain's Post-Brexit EU Relationship
Markets Price in Bank of England Rate Increases as Inflation Rises to 3.1%
UK Borrowing Costs Climb Toward 5.5% as Global Bond Sell-Off Intensifies
UK-France One-In-One-Out Migration Agreement Expires as London Seeks Alternative Measures
Southwest England Faces Flood Alerts After Heavy Autumn Storms
UK Expands Funding for Rapid Electric Vehicle Charging Infrastructure
Welsh Government Approves Funding to Upgrade South Wales Transport
Northern Ireland Tensions Rise as Orange Order Rejects Drumcree Compromise
NHS Leaders Back Early Design of Proposed National Care Service
More Than One-Third of Regional UK Universities Face Financial Deficits
UK Current Account Deficit Narrows as Cross-Border Financial Flows Remain Strong
Bank of England and FCA Issue New Rules for Stablecoins and Digital Assets
MI5 Warns UK Universities Over Research Links With Chinese Institutions
UK Energy Price Cap Rises 4% as Electricity VAT Is Temporarily Suspended
Equity Calls for UK Personality Rights to Protect Performers From AI Replication
OpenAI Pauses Advanced Model Training Following Safety Concerns
Scottish Government Proposes Replacing 32 Councils With Larger Regional Authorities
Ofgem Raises UK Household Energy Price Cap by 4% From October
UK Counter-Terrorism Police Continue Investigation After Five Arrests Near RAF Fairford
OECD Cuts UK 2027 Growth Forecast to 1%
Labour Says State Pension Triple Lock Remains Protected Through Current Parliament
Andy Burnham Pledges National Care Service With Free Social Care in England
Six Flags Permanently Shuts Landmark X2 Roller Coaster Following Safety Scandals
Metropolitan Police Rule Out Terrorism in Golders Green Stabbing Investigation
Lithium-Ion Battery Identified as Cause of Fatal Merseyside House Fire
UK Department Rejects New Sea Use Framework Due to Stakeholder Fatigue
Major Thames Water Pipe Burst Causes School Closures in London
×