The UK economy has stagnated this month as businesses are grappling with a series of cost increases stemming from the conflict in the Middle East, according to a recent report by data provider S&P Global.
The report revealed that overall business output declined for the second consecutive month, with the service sector, encompassing a wide range of industries such as banking and restaurants, being particularly hard hit. This sector, which contributes approximately 80% to the economy, is facing challenges primarily due to surging costs and reduced consumer confidence linked to the Middle East conflict and domestic political uncertainty.
Despite a tentative peace agreement between US President Donald Trump and Iran, the repercussions of the energy shock and the blockade of the Strait of Hormuz resulting from the conflict are expected to have a prolonged impact on the economy.
Companies experienced a significant drop in new work orders, leading to job cuts, as per the report’s findings. S&P projects a further 0.1% contraction in the economy this month, implying no growth over the past three months.
The current economic scenario serves as a stark reminder of the obstacles awaiting the successor to Sir Keir Starmer as Prime Minister, with Andy Burnham emerging as a top contender. The choice of Chancellor will be crucial, and Rachel Reeves is anticipated to be replaced.
Chris Williamson, the chief business economist at S&P Global Market Intelligence, noted that companies are facing elevated price pressures due to the energy shock and supply constraints from the Middle East conflict, exacerbating existing cost burdens. He highlighted the ongoing decline in employment rates and subdued growth expectations for the upcoming year.
Thomas Pugh, chief economist at RSM UK, expressed doubts regarding significant growth prospects for the remainder of the year, emphasizing the importance of clarity in fiscal policies regardless of an anticipated smooth transition in leadership.
Professor Joe Nellis, economic adviser at MHA, stressed the pivotal role of a thriving services sector in driving broader economic recovery. He underscored the need for sustained confidence and a reduction in inflationary and geopolitical pressures to create a stable and supportive business environment, although the current outlook remains grim.
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