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UK economy slides into contraction in August, PMI suggests

·2-min read
FILE PHOTO: The City of London financial district seen from across the River Thames, London, Britain

LONDON (Reuters) - Britain's economy ended August on a much weaker footing than previously thought as overall business activity contracted for the first time since February 2021 in a clear signal of recession, a survey showed on Monday.

Data company S&P Global revised down its composite Purchasing Managers' Index (PMI), which covers the services and manufacturing sectors, to 49.6 from a preliminary "flash" August reading of 50.9.

It marked the first sub-50 reading - denoting a contraction in output - since British businesses were reeling from a second wave of the COVID-19 pandemic that brought back lockdowns in late 2020 and early 2021.

The data showed Britain's economy is on course to slip into a recession caused by soaring energy costs that are feeding double-digit rates of inflation.

Addressing the cost-of-living crisis will be a top priority for the next prime minister. The winner of the Conservative Party leadership contest - either Foreign Secretary Liz Truss or former finance minister Rishi Sunak - will be announced later on Monday.

"Demand for consumer-facing services such as restaurants, hotels, travel and other recreational activities is collapsing under the weight of the cost-of-living crisis," said Chris Williamson, S&P Global chief business economist.

The services PMI for August was revised down to 50.9 from the flash reading of 52.5.

A further cooling of input cost pressures - while still historically high - was one of the few bright spots in the survey.

"Jobs growth is already starting to weaken and, with hiring tending to lag changes in order books, the recent slump in demand alongside surging energy prices points to a growing reticence to employ staff in coming months," Williamson said.

The Bank of England is monitoring inflation's spread in the economy as it weighs up how much further it needs to raise interest rates, having increased borrowing costs six times since December. Its next policy announcement is due on Sept. 15.

(Reporting by Andy Bruce; Editing by Hugh Lawson)