The economy shows resilience as prices rise

Russia’s aggression in Ukraine has hit the economy a little slower than expected, but businesses have experienced the biggest price increases since at least 1999, according to a key survey.

According to the Flash Composite Purchasing Managers Index (PMI) published by S&P Global and IHS Markit, strong growth in UK services and manufacturing companies continued this month, despite war uncertainty. The index fell 0.2 points to 59.7 this month, well above the 50 point mark that separates growth from contraction.

However, according to a survey of 1,300 manufacturers and service providers between March 11 and 22, optimism among business leaders fell to the lowest level since October 2020 due to concerns about inflation and the impact of Russia’s aggression on Ukraine. Fuel, energy and labor costs are rising as a result of the sharp rise in prices charged by companies since the index began in November 1999.

Higher commodity prices have raised concerns that energy bills, which will rise 54 percent next month, will jump again in the fall. Rising fuel and store prices will push up the cost of living this year and push for disposable income, which government forecasters have warned will dampen demand and consequently increase it.

The activity index in the services sector reached a nine-month high of 61, rising to 60.5 in February, as the hospitality sector regained momentum after lifting restrictions. However, manufacturing output fell to a five-month low of 52.6, a sharp fall from 56.9 in the previous month. The overall production index fell to a 13-month low of 55.5, down from 58 in February, as orders fell due to uncertainty among clients over the war in Ukraine.

Nicholas Farr, an assistant economist at Capital Economics, says rising commodity prices since the Russian invasion have increased business costs. “Surprisingly, due to rising commodity prices since the start of the Ukraine war, the input price balance of the composite PMI has increased slightly, from 81.6 to 81.7, and companies have reported passing these costs, the output price balance has reached a maximum since the series began in 1999. Level up, ”he said.“ Overall, the PMI survey gives some encouragement that the economy has so far been fairly resilient to the war in Ukraine. But it probably won’t last. “

Martin Beck, chief economic adviser at the YY Item Club, says the economy seems to have faded well since the post-Omicron activity and the impact of the Ukraine war on business sentiment. “While the flash manufacturing PMI fell from 58.0 to 55.5 in February, the service index rose to 60.5 from 61.0,” he said. “As a result, the March Flash Composite PMI was 59.7 slightly lower than 59.9 in February and was better than the long-term average.”

Beck added: “That said, the frontline indicators were less bullish. Significantly, the S&P Global / CIPS survey’s business confidence measure has dropped to its lowest level since October 2020. ” Although direct trade between the UK and Russia is low, the new supply chain has been disrupted due to the importance of Russia and Ukraine as raw material exporters, he said.

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