City warns: economy to slow further
The UK economy, already in its weakest state since the early 1990s recession, is set to slow further, top City economists warned yesterday as the UK was hit by a triple whammy of bad economic news.
Data released yesterday revealed that the manufacturing sector contracted at its fastest rate in seven years last month, the general publics’ expectation of inflation had soared to a record high of 4.6 per cent, UK business confidence has plummeted to a 16 year low and house prices are continuing to fall.
“The economy is now at its worst since the early 1990s and it is debatable whether it is worse than that. We are not even close to the bottom, there is a lot more bad news to come,” said Michael Saunders of Citigroup.
His comments followed data from the Chartered Institute of Purchasing and Supply (CIPs) indicating manufacturing had contracted in June at its sharpest rate since end 2001.
The overall purchasing managers’ index fell to 45.8 in June and the output price index rose to 62.6 from 62 as manufacturers pass on higher prices to customers. “Given the worsening inflation outlook we cannot rule out a rate hike by the Bank of England in July,” said Peter Newland, economist at Lehman Brothers.
The June YouGov/Citi survey, also released yesterday, found the public expected inflation to hit 4.6 per cent this year, heightening fears over the MPC’s decision this Thursday.
“The survey will reinforce fears that the Bank of England’s next move will be to raise interest rates, despite major concerns over growth,” said Howard Archer, economist at Global Insight.
The grim outlook will be reinforced by today’s report from BDO Stoy Hayward, which shows UK business confidence plummeting to a 16 year low. “We’ve not seen short term business confidence plunge this low since Black Wednesday in 1992,” said Peter Hemington, partner at BDO Stoy Hayward.