UK firms suffer biggest drop in activity since January 2021; Gordon Brown warns of more crises – business live

UK companies suffered the sharpest decline in activity since the lockdowns of January 2021 last month, as the economy weakened.

The closely-watched UK Composite PMI index fell to 49.1 in September, down from 49.6 in August, and further below the 50-point mark showing that activity stagnated.

It’s the lowest reading since January 2021, when the country had entered a lockdown after a surge in Covid-19 infections, but slightly better than the flash reading released on the day of the mini-budget.

The downturn was driven by a considerable fall in manufacturing production, while the services sector stagnated.

Both factories and services companies reported a drop in new business, while confidence dropped for the seventh time in the past eight months. Growth projections for the year ahead are now the weakest since May 2020, largely reflecting a slump of sentiment in the service economy.

Costs kept rising too, with firms juggling escalating energy prices, higher staff wages and supplier price hikes.

Despite the weak pound, exports fell in September for the first time in eight months, with companies blaming Brexit-related trade difficulties and weaker global economic conditions.

Dr John Glen, Chief Economist at the Chartered Institute of Procurement and Supply (CIPS), says:

More evidence of weaknesses in the UK economy appeared last month as the services sector flatlined in September, falling to the no-change mark with fewer orders and higher costs affecting output.

“The new business index was the lowest since February 2021 as domestic consumers had cost-of-living pressures and not hospitality uppermost in their minds. After enjoying rising levels of export orders for eight months in a row, the ongoing effects of Brexit and trade difficulties also reduced overseas enquiries for service companies.

The picture is no better in the eurozone either – where private sector output also fell at sharpest rate since January 2021.

New car sales in the UK have picked up compared with last year, but are still a third lower than before the pandemic.

There were 225,269 new cars registered in September, 4.6% more than in 2021, according to the Society of Motor Manufacturers and Traders (SMMT), but still 34.4% less than in September 2019.

Britain’s millionth plug-in electric car was registered last month, with 249,575 joining roads in 2022 alone.

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Tesco’s results are caught between “the jaws of post-pandemic normalisation and the rising cost of living”, says Zoe Gillespie, investment manager at RBC Brewin Dolphin:

Profits have taken a dip and are likely to be at the lower end of guidance this year, as the supermarket looks to align with customers and mitigate the impact of rising prices through a combination of initiatives – such as its Clubcard prices.

On the more positive front though, revenues have seen a marginal increase and cash flow has largely held up to the point where management feel confident enough to hike the dividend.

The drop in profits at Tesco shows that shoppers are feeling the pinch as the cost-of-living crisis takes hold, explains Matt Britzman, equity analyst at Hargreaves Lansdown:

“Supermarkets are no strangers to dealing with cost-of-living pressures, there’s been an all-out price war in the industry for some years now. Amongst the larger players, Tesco’s arguably been one of the standout businesses in the battle against low-cost outfits but pressures on consumer spending can only build for so long before something must give.

That pain’s slowly starting to feed into performance, as shopping behaviours continue to normalise from bumper levels seen over the pandemic and inflation keeps costs high – that’s meant full year profit guidance got a slight downgrade toward the bottom end of the previous range.

Neil Shah, executive director of content and strategy at Edison Group says Tesco’s interim results may put investors on edge.

Despite statutory revenue being up 6.7% since last year, the group’s operating profit declined by 43.6% and its profit before tax slumped 63.9%. Furthermore, adjusted operating profit for the group’s bank division dropped by 6.9% and, in a sign of increasing pressure on consumers, Non-Food sales declined 6%.

As the cost-of-living crisis continues to squeeze household budgets, Tesco has been faced with increased competition with cheaper supermarkets such as Lidl and Aldi. Tesco is therefore determined to compete with Aldi and Lidl’s prices, with the company extending its Aldi price match scheme to over 650 products in April.