London economy contracts as rampant inflation chills spending

UK Costs Of Living And Inflation
Rampant price rises prompting a spending slowdown from consumers sent a chill through businesses in November, according to NatWest’s purchasing managers’ index (PMI) (Photo by Chris J Ratcliffe/Getty Images)

London’s economy contracted last month as it is squeezed by roaring inflation and swelling business costs, a new survey out today shows.

Rampant price rises prompting a spending slowdown from consumers sent a chill through businesses in November, according to NatWest’s purchasing managers’ index (PMI).

The high street bank’s PMI dropped to a 22-month low of 48.2 points from 49.7 points.

“Lower sales, rampant inflation and reduced confidence amid recession concerns” drove the index lower, NatWest said.

Prices have accelerated 11.1 per cent over the last across the UK, the biggest jump in 41 years, while pay has trailed far behind.

As a result, households are scaling back spending due to not being able to buy the same quantity of goods and services with their income.

The capital has outperformed the rest of the UK in recent months, but it has now been pulled down into the wider economic slump.

Experts think the country is on course for an at least year long recession which started in the third quarter of this year.

Real incomes are on track to be eroded at a record pace due to inflation continuing to rip through next year.

However, there are signs in NatWest’s PMI that price pressures are unwinding.

The survey’s inflation index dropped for the second month in a row to the lowest level since February, which is likely to be reflected on a national level.

New inflation data out on Wednesday from the Office for National Statistics is likely to fall below 11 per cent and many economists think it has peaked and will fall slowly over the coming year.

Analysts said London firms are struggling to clear backlogs of work built over the course of the pandemic due to worker shortages.

“Not only are sales dropping as companies reassess spending in the face of rampant inflation and a looming recession, but output is still being held back by staffing shortages, leading to a further (albeit softer) increase in outstanding work,” Catherine Van Weenen, NatWest London and the south east regional board, said.

NatWest’s PMI showed London’s jobs market stagnated last month.