By William Schomberg
LONDON (Reuters) -Britain's businesses grew at their slowest pace in 17 months in July and inflation pressures eased, according to an industry survey that might reduce pressure on the Bank of England to deliver a bigger-than-usual interest rate hike next month.
The preliminary version of the S&P Global's Purchasing Managers' Index (PMI), covering services and manufacturing firms, fell to 52.8 - the lowest since February 2021 - from June's 53.7.
Chris Williamson, chief business economist at S&P Global Market, said the reading was consistent with quarterly economic growth of 0.2% and there were signs from order books that the slowdown would worsen.
"The concern is that rising interest rates, as the Bank of England seeks to control inflation, will cause demand growth to weaken further in the coming months," Williamson said.
"To be hiking interest rates at a time of such weak business growth is unprecedented over the past quarter-century of survey history."
The central bank has said it is ready to raise interest rates by a bigger-than-usual half-percentage point if it sees signs of persistent inflation pressures.
Its next scheduled rates announcement is on Aug. 4.
Data from Refinitiv showed that investors had pared back their bets on a 50 basis-point rate hike by the BoE to around 68% from almost 100% earlier this week.
While the PMI suggested a slowdown in growth in Britain, parallel surveys for other European economies showed a contraction.
Other data on Britain's economy published on Friday showed consumers cut back on their shopping in June and consumer confidence remained at an all-time low.
The contenders to succeed Boris Johnson as prime minister are split on how to revive the economy, with tax cuts the main dividing line in the campaign so far.
The PMI survey showed output among factories contracted for the first time since May 2020 but travel and leisure firms saw stronger new orders.
The slowdown was mostly due to weaker demand but continued shortages of supplies and staff also put a break on growth.
Input cost inflation fell to a 10-month low - or an 18-month low for manufacturers - welcome news for the BoE.
The fall was due to weaker commodity prices and a stabilisation in fuel costs although many firms reported intense salary pressures and some said the pound's fall against the U.S. dollar was also hurting them.
Prices charged by firms rose at the slowest pace since January as demand from clients softened.
Companies remained cautious about the outlook although their mood improved from June's 25-month low, driven by service firms.
Employment rose at the slowest pace in 16 months.
(Reporting by William Schomberg; Editing by Susan Fenton)