Yahoo Finance Interest rate and price rises will linger for longer, UK economic data suggests
Manufacturing industry report bolsters Bank of England's case for painful remedy to bring inflation under control
New UK data from the manufacturing industry adds to the case for the Bank of England to consider implementing further interest rate hikes, as consumer price inflation remains well above targets.
Manufacturers continued to underperform as production volumes declined for the eleventh time in the past 12 months, according to the S&P Global/CIPS Flash UK PMI for June.
Meanwhile, business activity across the UK private sector increased for the fifth consecutive month in June.
Overall private sector output growth was the slowest since March, reflecting a much softer rise in new order orders as companies cut spending.
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"June's flash PMI survey indicates that the UK economy has lost momentum again after a brief growth spurt in the spring, and looks set to weaken further in the months ahead," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
While the manufacturing sector reports "recessionary conditions," the survey found that there is still strength in the labour market, with jobs growth accelerating in June as companies in the service sector continue to fill vacancies.
This is generating higher wage growth, in turn feeding through to still-elevated inflation pressures in the service sector.
"The survey’s price gauges point to consumer price inflation remaining well above the Bank of England's target into 2024, which will add to the case for further interest rate hikes," added Williamson.
"The stubbornly elevated price growth in the service sector suggests the Bank of England will consider its fight against inflation as still a work in progress."
Read more: Bank of England announces new interest rate hike
Other bright spots came from a fall in costs, as the manufacturing sector appeared to leave behind the supply chain constraints which reached a fever pitch during the COVID pandemic. This resulted in the fastest fall in costs since February 2016.
The data comes just days after another round of Bank of England interest rate hikes. On Thursday, the Bank of England increased rates for a thirteenth consecutive time, bumping them by 0.5% to 5%.
Rates are now at a 15-year high as the Bank looks to combat high inflation and cool the cost of living crisis.
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