The UK private sector continued to expand at a robust, albeit slower, pace in March, led by services though high inflation and the Russia-Ukraine war hurt business optimism significantly, preliminary survey data from S&P Global showed Thursday.
The S&P Global / CIPS Flash composite purchasing managers’ index, which combines manufacturing and services, eased to 59.7 from 59.9 in February. Economists had forecast a score of 58.7.
A PMI reading above 50 suggests growth in the sector.
The survey data were collected during March 11-22.
The services PMI flash climbed to a nine-month high of 61.0 from 60.5, defying expectations for a drop to 58.0.
The return to offices and customer events alongside pent up demand for travel, leisure and entertainment boosted business activity in the service economy.
Meanwhile, the manufacturing PMI flash sunk to a 13-month low of 55.5 from 58.0, which was worse than the expected score of 57.
Ongoing supply shortages and greater caution among clients coupled with escalating inflationary pressures dampened activity in the factory sector.
The manufacturing output index dropped to 52.6, the lowest in five months, from 56.9 in the previous month.
New orders in the private sector increased at a slower pace than in the previous month, led by manufacturing. The rate of job creation was the fastest since August, driven by services.
Input costs rose sharply in March and the relevant index signaled the second-fastest rate of inflation for more than two decades. Consequently, the index for average prices charged increased at the fastest pace since it began in November 1999, led by the services sector.
The index for business optimism dropped to 71.4 from 76.1 in February, the lowest level of confidence since October 2020, thanks to rising inflation and the war in Ukraine.
Further, the monthly fall in business expectations was the biggest setback since the start of the pandemic and reflected much weaker year ahead growth projections in both the manufacturing and services sectors, the survey said.
“The survey indicators point to potentially sharply slower growth in the coming months, accompanied by a further acceleration of inflation and a worsening cost of living crisis, which paints an unwelcome picture of ‘stagflation’ for the economy in the months ahead,” Chief Business Economist at S&P Global Chris Williamson said.