British private-sector growth slowed to its weakest pace in four months in April as businesses raised prices on the broadest basis since at least the late 1990s, a closely watched survey showed on Thursday.
The figures from the S&P Global/CIPS Purchasing Managers’ Index (PMI) highlight the challenge facing the Bank of England, which is widely expected to raise interest rates later on Thursday as it seeks to tame inflation while minimising the chance of a longer-term slowdown.
“The twin headwinds of the cost of living crisis and the war in Ukraine started to bite on the UK service sector during April, as evidenced by a sharp slowdown in new order growth to the lowest in the year so far,” S&P Global economics director Andrew Harker said.
The services PMI fell to 58.9 in April from 62.6 in March, dropping to its lowest level since January, when the economy was suffering from the Omicron wave of coronavirus cases, and business confidence declined to an 18-month low.
The composite PMI – which includes Tuesday’s manufacturing PMI data – fell to 58.2 from 60.9, while the output prices component rose to its highest since the series started in 1999.
The official consumer price index showed annual inflation hit a 30-year high of 7.0% in March, and many economists think it will come close to double digits later this year due to surging energy prices.
The BoE is expected to announce it is raising interest rates by a quarter-point to 1%, their highest since 2009, at 1100 GMT.
Wages are not keeping up with inflation, however, and in March government forecasters predicted the biggest cost of living squeeze since records began in the late 1950s.
Consumer confidence has since fallen to its weakest since July 2008, a potential harbinger of recession.
The International Monetary Fund predicts British growth will slow to the weakest in the G7 next year at 1.2%.
S&P Global said businesses have continued to increase staffing levels to meet higher demand, albeit at the slowest pace since January. Some firms reported delays to projects from staff shortages.
Unemployment in the three months to February fell to 3.8%, its joint-lowest since 1974.
(Reporting by David Milliken; Editing by Hugh Lawson)