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UK economy ‘draining’ as recession fear grows

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UK economy ‘draining’ as fears grow over global recession, experts warn

The economy is running ‘on empty’ as fears grow over a global recession, experts warned yesterday.

Since May 2020, companies have been the most gloomy about their growth prospects, according to data provider S&P Global. At the same time, manufacturing activity is at its lowest level in 23 months.

The slowdown is resonating around the world, fueling fears of a global slump as inflation rises and interest rates rise.

Slowdown: UK companies are now most gloomy about growth prospects since May 2020, according to data provider S&P Global

US factories reported their first production drop in two years as the crisis bites the cost of living.

And high prices in the eurozone have caused demand for manufactured goods to decline at the fastest rate since May 2020 amid the depths of the Covid crisis.

Back in the UK, customer demand was “muted,” S&P said, as scalding inflation left businesses and consumers straining their wallets.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The economy is starting to look like it’s draining.

Current business growth is supported by orders placed in previous months as companies report near-stagnant demand.

“Manufacturers in particular are struggling with declining orders, especially for exports, and the services sector is already seeing signs of the recent growth spurt from pent-up pandemic demand reversing against the backdrop of the rising cost of living.”

Such low levels of confidence “typically signaled an impending recession in the past,” Williamson added.

The pound, which has already plunged about 9 percent against the dollar this year, fell below $1.22 before recouping its losses.

Rising prices around the world, prompted by the Russian invasion of Ukraine and supply chain chaos caused by Covid, are taking their toll on economies that have only just recovered from Covid’s pandemic lockdowns.

Jack Allen-Reynolds of Capital Economics said the euro-zone data showed “a further slowdown in the services sector, while manufacturing output now appears to be plummeting.”

But with prices still rising, he added: ‘The eurozone appears to have entered a period of stagflation’.

This is a worrying prospect for households, as it typically comes with a period of lower unemployment and falling living standards.

Jerome Powell, chairman of the US Federal Reserve, has acknowledged that a recession in the US is ‘certainly possible’.

There was some cause for optimism in the UK, as the services sector – which includes everything from restaurants to banks – remained “resilient” according to S&P.

But S&P added that many service companies “also cited the headwinds to growth stemming from the cost of living crisis and heightened economic uncertainty.”

And separate figures from data firm GfK indicated the resilience won’t last long, as consumer confidence fell to its lowest level in June since records began in 1974.

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