By Andy Bruce
(Reuters) -British companies buckled in April under the strain of an escalating global trade war that threatens to tip the economy into a new downturn, a survey showed on Wednesday.
The S&P Global Composite Purchasing Managers’ Index (PMI), a gauge of the private sector economy, slid to 48.2 in April from 51.5 in March.
This marked the lowest reading since November 2022 when businesses were wracked by surging energy costs and financial market turmoil after former Prime Minister Liz Truss’ poorly received budget plans.
Readings below 50 denote a contraction in business activity.
Export orders fell at the fastest pace since the early months of the COVID-19 pandemic in 2020, while costs faced by businesses grew at the fastest rate in more than two years as higher employment taxes and an increased minimum wage kicked in.
Despite the inflationary warning signal, the sharp drop in business activity is likely to further cement expectations that the Bank of England will cut interest rates next month – something that had looked uncertain a few weeks ago.
Britain’s economy defied expectations in February by growing 0.5%, according to official data published earlier this month.
Wednesday’s PMI suggested the economy is now contracting at a quarterly pace of around 0.3%, S&P Global Chief Business Economist Chris Williamson said.
Although Britain hopes it will emerge with a relatively low tariff rate on goods sent to the United States compared with competing economies, Brexit has already weakened exporters and weaker global growth is likely to hurt their prospects further.
“The collapse in confidence and drop in output during April raise red flags as to the near-term economic outlook and add pressure on the Bank of England to reduce interest rates again at its May meeting,” Williamson said.
Financial markets on Tuesday fully priced in a BoE rate cut at its May 8 announcement.
Williamson said the global outlook was the biggest concern for British companies but they had also faced sharply higher staffing costs in April due to employment tax rises and a nearly 7% rise in the minimum wage.
“There will be some uncertainty as to whether the recent upturn in price pressures could become entrenched or whether it merely represents a short-term tax-related spike which should be ‘looked through’,” Williamson said.
The PMI for the services sector fell to 48.9 from 52.5, dropping from a seven-month high in March to a 27-month low this month.
The manufacturing sector, already struggling, fared even worse in April as its PMI fell to 44.0 from 44.9 in March, a 20-month low. New manufacturing export orders collapsed at a rate surpassed only three times in monthly PMI surveys dating back to 1996.
(Reporting by Andy Bruce; Editing by Hugh Lawson)
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