Private sector growth slows in May amid signs of inflation in cold storage services

Private sector growth slowed in May, although economists were buoyed by early signs of inflation in the cold storage sector.

New data showed that experts say Britain’s economic recovery from the mild recession that took place in late 2023 has lost momentum this month.

On Thursday, the closely watched S&P Global/CIPS Flash UK Purchasing Managers’ Index (PMI) recorded a reading of 52.8 in May, down from 54 in April.

Preliminary data is based on preliminary data. Any score below 50 means activity is decreasing, and any score above means it is increasing.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The survey data is consistent with second quarter gross domestic product growth of around 0.3%, with an encouraging recovery in the manufacturing industry accompanied by a sustained, if slower growth of the service sector.”

Activity in the services sector continued to grow, although at a slower pace than a month ago. The index result in May was 52.9 compared to 55 in April.

The slowdown in growth is a bad sign for Prime Minister Rishi Sunak’s Conservative Party, which launched its general election campaign yesterday on the claim that the British economy is growing.

This month, companies reported the mildest increase in average sales prices in more than three years.

However, experts were encouraged by the slowdown in production cost inflation, which, after a sharp increase in April, fell to the lowest level in seven months.

Input costs are the costs associated with creating business products and services.

Services sector inflation, a key measure of domestic price pressure, has remained consistently high in recent weeks.

Wednesday’s data from the Office for National Statistics showed inflation in the services sector was 5.9% in April, down from 6.0% in March.

However, today’s research indicates that the trend will reverse in the coming months.

The rate has been cited as a key sticking point for Bank of England economists in deciding whether to cut the UK’s key interest rate, with most preferring to wait for it to fall before deciding to cut rates.

The story continues

PMI data shows that the temporary increase in wage-related costs in April, driven by the introduction of the higher National Living Wage, showed signs of cooling in May.

Meanwhile, industrial production rose again after falling slightly last month, recording a two-year high of 52.7.

Williamson said today’s reports of a cooling in inflation in services was “welcome news… needed to open the door for the Bank of England to start cutting interest rates”.

He added: “Companies also report that intense competition limits their ability to raise prices, particularly as demand weakens due to higher costs of living.

“With companies now seeing their slowest price growth in over three years and headline inflation falling close to target, the PMI data supports the view that the Bank of England will start cutting interest rates in August if data continues to move in the right direction in the summer.”