Published On: Thu, May 26th, 2022

Risk of recession increases as businesses feel the pinch | City & Business | Finance

The S&P/CIPS composite purchasing managers index (PMI), a closely watched economic indicator, has fallen from 57.6 in April to 51.8 this month. That is the lowest score in 15 months. A score above 50 points to economic expansion, below signals contraction.

S&P said that businesses were feeling the pressure from their escalating costs, as well as geopolitical uncertainty and inflation undermining consumer confidence and demand. It added that businesses have trimmed back their growth projections to their lowest levels since the early days of the pandemic.

Chris Williamson, chief business economist at S&P Global, said the data indicated that there was a “heightened risk” of the economy falling into recession.

The post Covid-19 boost from the reopening of the economy has faded, while soaring prices, supply delays, labour shortages and the increasingly gloomy outlook will hamper the economy.

He added: “The UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come.

“Meanwhile, the inflation picture has worsened as the rate of increase of companies’ costs hit yet another all-time high.

The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels.”

RSM economist Thomas Pugh agreed: “This [the fall in the May PMI score] is a clear sign that the economy looks set to worsen after contracting by 0.1 per cent in March.

“We have already pencilled in growth of -0.1 per cent in the second quarter, but this reading increases the chances of a bigger fall in Q2 and of a recession this year.”

And the inflationary squeeze on businesses and consumers is set to get worse, according to The Restaurant Group, the owner of Wagamama, Frankie & Benny’s and Brunning & Price pubs.

It expects food and drink prices to rise by up to 10 per cent, up from its March prediction of five per cent, as the war in Ukraine has exacerbated existing supply chain issues.

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