Slowdown fears pile pressure on pound

THE pound slumped as the prospect of a recession loomed amid a slew of poor economic news.

Data revealed a sharp slowdown in business activity while separate figures showed grocery prices rising at the fastest rate in 13 years.

The closely watched S&P Purchasing Managers’ Index (PMI) fell sharply in May to 51.8.

It was a drop from 57.6 in April and its lowest level since last February and the fourth sharpest slowdown on record.

The PMI measures the direction of economic trends in the manufacturing and services sector, with any reading under 50 representing a contraction.

The service sector, which includes the travel industry and media and entertainment, suffered the most as customers reined in spending in the face of uncertainty sparked by soaring inflation amid the war in Ukraine.

Thomas Pugh, economist at business advisory firm RSM UK, said a recession would likely be avoided by Government support and strong finances built up by households during the pandemic.

But he said: ‘This is a clear sign that the economy looks set to worsen after contracting by 0.1pc month-to-month in March.’

Analysts also said the PMI data raised the prospect of stagflation, when slow growth is accompanied by rocketing prices.

The pound sank on the news, dropping against the dollar exchange by 0.4pc, to $1.25.

Figures from consulting firm Kantar showed grocery price inflation hitting 7pc, its highest level since May 2009.

More than a fifth of households say they are struggling to make ends meet, with almost all of these blaming the cost of a weekly shop.

Meanwhile only one in three shoppers consider themselves to be in a ‘comfortable’ financial situation, Kantar found.