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The economic recovery could be stalling, hit by manufacturing weakness and Chinese woes

3 min read

14 September 2015

Fears that the economy has hit a turning point have been raised as optimism amongst UK businesses falters.

The UK economic recovery could be reaching a juncture, hit by a slowdown in business activity growth and concern over the impact a weaker China might have on global trade.

According to the latest Lloyds Bank Regional Purchasing Managers’ Index, the business activity index for England registered a 27 month low of 55.7 in August, down from 56.7 in July. Growth has now weakened in four of the past five months.

The East Midlands and East of England recorded the joint-fastest increases in business activity with the South West and North West of England experiencing the weakest overall rise.

Employment across England and Wales continued to rise during August, but a slower rate than previously.

The average prices charged for goods and services showed only a small rise, and inflation rates eased from previous months. This partly reflected lower global commodity prices which helped to offset rising salaries and wages.

Tim Hinton, managing director for mid markets and SME banking at Lloyds Banking Group, said: “Economic and employment growth in England and Wales have slowed compared to the beginning of the year but remain at healthy levels. The underlying UK economy remains strong, and lower global commodity prices are helping to offset rising wage costs, so businesses should remain confident and continue to explore growth opportunities.”

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A separate report by accountants and business advisers BDO said that UK businesses expected robust growth for the rest of the year boosted by strong consumer spending, helped by rising wages and near-zero inflation.

However BDO found that businesses are less optimistic about the growth continuing in 2016. 

Manufacturers are particularly concerned, recording the lowest level of confidence – 86.2 – since November 2012. This is dramatically below the 95 mark which indicates growth.

Exporters, already pressured by the continued strength of the pound, are increasingly nervous that economic turmoil in China will start to affect growth around the world, hitting core markets.

Peter Hemington, partner at BDO, said: “While the expected continued economic growth is encouraging, falling business confidence suggests the UK economy is approaching a turning point. 

“Policy makers cannot ignore this, otherwise they run the risk of an economic slowdown. Any rumours of a rate rise in the near future must be squashed. Now is not the time to cut household spending, the very thing driving economic growth, or to introduce moves which will strengthen the pound further and hit our exporters.

“The UK cannot rely on consumer spending and services in the long-term. Policy makers must focus on steps to rebalance the economy and give support to manufacturers and greater wealth creation in the north and midlands.”