The economy has suffered a smaller setback than expected from Russia's invasion of Ukraine, but businesses face the steepest price rise since 1999, according to a key survey.
According to the flash composite purchasing managers index PMI published by S&P Global and IHS Markit, Britain's service and manufacturing companies continued this month despite uncertainty caused by the war. The index dropped by 0.2 points to 59.7 this month, keeping it well above the 50 point mark that separates growth from contraction.
According to a survey of 1,300 manufacturing and service providers between March 11 and 22, optimism among business leaders fell to its lowest since October 2020 because of concerns about Russia's invasion of Ukraine. Since the index began in November 1999, rising fuel, energy and staff costs resulted in the steepest rise in prices charged by companies.
Higher commodity prices have raised concerns that energy bills, which are set to rise by 54 per cent next month, will jump again in the autumn. The cost of living and eating disposable income is set to go up this year because of rising fuel and shop prices, as official forecasters have warned that demand and growth will be slowed as a result of the rising fuel and shop prices.
Activity in the services sector rose to a nine month high of 61 on the index, up from 60.5 in February, as the hospitality sector regained momentum after the lifting of restrictions. The manufacturing output fell to a five month low of 52.6, a drop from 56.9 in the previous month. The overall index for manufacturing dropped to a 13 month low of 55.5, down from 58 in February, as orders fell because of uncertainty among clients caused by the war in Ukraine.
Nicholas Farr, an assistant economist at Capital Economics, said that the surge in commodity prices had pushed up costs for businesses since Russia s invasion. The input prices balance of the composite PMI went from 81.6 to 81.7 and firms reported passing these costs on, with the output price balance reaching its highest level since the series began in 1999, he said. The PMI survey shows that the economy has been fairly resilient to the war in Ukraine so far. This probably won't last. Martin Beck, chief economic adviser to the EY Item Club, said the economy appeared to have weathered the decline in activity after Omicron and the impact of the war in Ukraine on business sentiment. Although the flash manufacturing PMI fell to 55.5 from February's 58.0, the services index rose to 61.0 from 60.5, he said. March's flash composite PMI of 59.7 was down only slightly from February's 59.9 and was well above the long-run average. Beck said that forward-looking indicators were less optimistic. Business confidence fell to the lowest level since October 2020, according to the S&P Global CIPS survey. The importance of Russia and Ukraine as exporters of raw materials has resulted in new supply chain disruptions between the UK and Russia, he said.