LONDON Britain's private sector is growing at its weakest pace in six months in July as orders for businesses stagnate in the face of rising interest rates and still-high inflation, a survey showed on Monday.
The S&P Global/CIPS composite Purchasing Managers' Index showed a preliminary reading of 50.7, down from 52.8 in June in the biggest month-on-month drop in 11 months.
Although above the 50-level that separates growth from contraction, it was the weakest reading since January.
Economists polled by Reuters had expected a drop to 52.4.
The survey reinforced a sluggish outlook for Britain's economy, which has so far defied forecasts of recession in 2023 but has yet to feel the full impact of 13 back-to-back interest rate increases by the Bank of England.
"Rising interest rates and the higher cost of living appear to be taking an increased toll on households, dampening a post-pandemic rebound in spending on leisure activities" said Chris Williamson, chief business economist at S&P Global, which produces the data.
"Meanwhile, manufacturers are cutting production in response to a worryingly severe downturn in orders, both from domestic and export markets," he said.
Last month the BoE raised rates to 5% from 4.5%, and financial markets expect a further increase to 5.25% next week. British inflation, at 7.9% in June, is the highest among major economies.
S&P said the loss of momentum was most severe in manufacturing - which accounts for about 10% of economic output - where the PMI dropped to 45.0, its lowest since May 2020, from 46.5.
Businesses reported that customers were using up existing surplus stocks rather than placing new orders.
The preliminary services PMI fell to a six-month low of 51.5 from 53.7, reflecting a slowdown in house purchases and reduced spending by businesses and consumers on non-essential services.
"Forward-looking indicators ... all point to growth weakening further in the months ahead, adding to a risk of GDP falling in the third quarter," Williamson said.
Britain's economy shrank by 0.1% in May - when there was an extra public holiday to mark King Charles' coronation - and the outlook for 2023 as a whole is weak.
EY ITEM Club forecast on Monday that the economy would grow by 0.4% this year and 0.8% in 2024.
Inflation pressures are easing, however. The PMI showed the smallest rises in firms' input and output prices since February 2021, pointing to "further, potentially marked, falls in consumer price inflation in the months ahead," Williamson said.
Wages remained a major factor pushing up costs, offsetting some of the price falls for energy, freight and metals.
(Reporting by David Milliken; editing by John Stonestreet)