The latest Flash PMI data for September from IHS Markit shows the fourth successive monthly slowing of business activity. At the same time goods and services inflation is rising at the fastest rate in at least 22 years. The Bank of England is rightly concerned on scaling back its pandemic stimulus.
Stagflation from growth trending sharply lower while prices continue to surge higher is here, will it last?
Supply constraints limit business activity the damage is clear from virus related restrictions, shutting down economies have consequences. The result is a fourth successive monthly slowdown in the UK to the lowest since the pandemic began. The spread of the Delta variant is causing disruptions to supply chains and the labour market and hit demand. You can’t spend money if you don’t have money to spend. Demand was on the rise but the second wave of locked down put an end to that. The IHS Markit survey shows business activity increasingly constrained by shortages of raw materials and labour.
A lack of staff and components were especially widely cited as key causes of an overall fall in output within the food, drink and vehicle manufacturing sectors. Similarly, many hospitality and consumer-facing service providers reported a slowdown in new order inflows after August’s revival, and were often impeded by a lack of staff or high COVID-19 infection rates, curbing the overall rate of expansion alongside a broader slowdown which has hit demand for business and financial services. – IHS Markit
Inflation accelerating at record pace
While central bankers at the Bank of England and Federal Reserve like to say inflation is transitory it is perhaps a bit of wishful thinking in those comments. Do they really know what’s going on? Fed’s Powell at the Fed Listens event on Friday said ‘Never Really Seen These Kind Of Supply Chain Issues’ and ‘Never Had Economy Combining Such Job Shortages, Slack In Labor Market’
Markit said that shortages are meanwhile seen as a key factor driving up prices at unprecedented rates, as firms pass on higher supplier charges and increases in staff pay. The flash Composite PMI Prices Charged Index rose to a level surpassing anything seen since comparable data on selling prices were available in 1999, accompanied by another month of near-record input cost inflation.
Brexit Constrains Growth During Pandemic
Then we have Brexit and the Markit noted that Brexit was often cited as a contributory factor to September’s slowdown, exacerbating global pandemic-related supply and labour market constraints, as well as subduing demand for exports. Growth of manufacturing exports slowed and was close to stalling in September, accompanied by near-stagnant service sector exports. More than one-in-three manufacturers reporting reduced export orders explicitly cited Brexit as a contributing factor to the decline.
Expect more issues here after the fallout from France being cut out of the Australian submarine deal with the new UK, USA Australia security deal. French Presidemt Macron responded by recalling the ambassadors from both the US and Australia.
No surprise though that jobs growth slowed in September. You have worker shortages from those who can’t work or scared to because of the delta variant. Further to that a slowdown of inflows of new business to a seven-month low. Business expectations for the year ahead have meanwhile also fallen to their lowest since January, with concerns over both supply and demand amid the ongoing pandemic casting a shadow over prospects for the economy as we move into autumn.
Bank of England Concerns
We saw this week that the Bank of England’s Monetary Policy Committee is split on whether the time is right to start considering tapering its emergency stimulus. This is why it is hoped inflation is transitory. This argument becomes shaky (not that it isn’t already) with further acceleration of price growth. Then the lockdowns have hit growth, confidence and jobs. Little doubt economies would be devastated by a major shutdown at this time.
From The TradersCommunity Research Desk