UK economy slows as demand falls in August

The UK economy is bracing for recession as growth slows. Photo: PA
The UK economy is bracing for recession as growth slows. Photo: PA

Output growth across most sectors in Britain slowed down last month as demand fell and input cost inflation declined.

According to the latest Lloyds Bank UK Sector Tracker, the number of UK sectors reporting falls in demand increased for a fourth successive month in August.

Slower rises in material and logistics costs helped bring overall input cost inflation (76.6 vs. 78.4 in July) down to its slowest pace since September 2021, the Tracker showed.

However, reports of energy and salary cost inflation remained close to record highs.

Of the 14 sectors monitored, 11 saw demand, as represented by new orders, fall – one more than in July and the highest number since June 2020.

Tourism and recreation, which includes pubs, hotels, restaurants and leisure facilities, saw the fastest fall in demand to 38.0 from 42.3 in July, as consumers continued to rein in discretionary spending.

Each of the sectors that saw new orders contract also saw output decrease (11 out of 14 sectors in August vs. nine in July).

Technology equipment manufacturers (58.1 on the Tracker’s measure of demand vs. 52.4 in July), providers of software services (57.8 vs. 58.0) and metals and mining firms (51.0 vs. 34.3) were the only sectors to see both demand and output grow.

Scott Barton, Managing Director, Lloyds Bank Corporate and Institutional Banking, said: "The cost of doing business remains extremely high, and firms continue to face into a significant period of uncertainty.

"Reduced supply chain pressures is positive news for businesses, helping to alleviate one of the challenges they face and should allow them to free up some working capital that they may have otherwise tied up in stock.

"This should allow businesses to benefit more from the flexibility and agility to react to whatever lies ahead. Healthy cashflow and strong working capital management will be key – ensuring that management teams can deploy funds where needed, when required, to capitalise on new opportunities and continue to trade through slower periods."

Read more: What can we expect from Kwasi Kwarteng's mini-Budget next week

It comes as UK chancellor Kwasi Kwarteng is set to deliver a mini-Budget this week, setting out details of help for households and businesses amid the cost of living crisis.

Earlier this month, in her first major policy intervention since becoming prime minister, Liz Truss announced an Energy Price Guarantee to freeze bills at £2,500 until 2024 from October.

Truss also announced a six-month energy support scheme for businesses, schools and hospitals, and businesses are expecting Kwarteng to outline the specifics of how the plan will be funded.

Britain's inflation is currently running at 9.9% last month – the highest in the G7 group of leading economies — and almost five times the Bank of England’s 2% target.

Jeavon Lolay, head of economics and market insight at Lloyds Bank Corporate and Institutional Banking, said: "While the government’s energy support package represents a crucial intervention for households and businesses, it is too early to tell whether this will turn the overall trend of the economy.

"However, it should have a marked impact on UK inflation, with the likely peak later this year now estimated to be closer to the current rate of 10%, rather than the much higher double-digit rates anticipated for next year."

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