UK economy headed for prolonged slump despite jobs market resilience

The UK economy is headed for a protracted slump and possibly a recession caused by soaring inflation hitting households and businesses, revealed a survey published yesterday.

Output has dipped to its lowest level since February last year, when the country was in the teeth of the most onerous Covid-19 prevention measures, according to consultancy BDO.

The firm’s index dropped nearly three points to around 98, below the 100 threshold that separates long-term growth and contraction.

Weaker consumer spending prompted by Brits responding to rampant inflation eating into their finances weighed on services activity in June.

Living costs are up 9.1 per cent over the last year, the fastest acceleration since the early 1980s. Wages have failed to keep pace, meaning consumers are unable to buy the same goods and services, eroding their living standards.

The cost of living is projected to top 11 per cent this autumn, indicating the economy is in for prolonged period of weak growth or even a recession. BDO’s inflation index climbed to its highest level since records began.

Supply chain disruption caused by China locking down trading hubs to deal with virus cases, the Russia-Ukraine war and higher input costs chilled manufacturing activity.

Despite the growing body of evidence suggesting a recession will hit soon, the jobs market continues to remain resilient. BDO’s employment index topped pre-pandemic levels last month.

Kaley Crossthwaithe, partner at BDO, said: “The continued falls in output and confidence provide a stark warning of the challenges businesses face in the coming months, with a perfect storm of staffing shortages, an expected increase in the energy price cap, and weakened consumer spending.”