Data published by S&P Global and CIPS showed that in September the UK composite output index fell to 48.4 points from 49.6 points in August, and reached its lowest level since January 2021. The latest reading pointed to a second consecutive month of contract in the private sector. The manufacturing PMI rose to 48.5 points from 47.3 points in August, and the services PMI fell to 49.2 points from 50.9 points, entering in contraction territory for the first time since February 2021. Economists had expected that the manufacturing PMI would rise to 47.5 points, and the PMI in the service sector would fall to 50.0 points. There were a number of reports that the slowdown in sales amid the cost-of-living crisis and growing economic uncertainty affected the level of activity in September. At the same time, manufacturers registered a slightly softer, but nonetheless sharp, drop in production (manufacturing output index: 44.4). Demand conditions generally weakened for the second month in a row in September, with the total number of new orders in the private sector declining at the fastest pace in 20 months. The volume of new orders in the service sector declined for the first time in just over 1.5 years, albeit slightly, while manufacturers registered a further noticeable drop in sales, which was the second largest since May 2020. Export orders also fell sharply, with goods manufacturers reporting the biggest drop in foreign demand in 28 months, and service companies reporting the first decline since December 2021. Meanwhile, private sector employment increased again in September. The growth rate was generally stable, but did not change compared to the 17-month low in August. Meanwhile, outstanding business fell for the second month in a row as signs of spare capacity became more apparent.
The rate of input cost inflation fell to an annual low, but nonetheless remained among the highest since the survey began in January 1998. Sector-by-sector data showed that while manufacturers saw a faster rise in production prices, this was largely offset by a softer level of inflation in the service sector. The increase in costs was attributed to a number of factors, including higher costs for electricity, fuel, personnel, transport and materials, as well as a lower exchange rate. Looking ahead, private sector companies expressed reduced optimism about the 12-month forecast of business activity, while the overall level of positive sentiment was the lowest since May 2020.