UK firms struggle to grow as BoE rate decision approaches

By William Schomberg

LONDON (Reuters) -British business activity grew only weakly in July and employers cut jobs at the fastest pace in five months, according to a survey that is likely to add to speculation about a Bank of England interest rate cut next month.

The S&P Global UK Composite Purchasing Managers’ Index (PMI), published on Thursday, slowed to 51.0 points from 52.0 in June, not far above the 50.0 level that separates growth from contraction. A Reuters poll had forecast a smaller fall to 51.8.

The survey’s employment gauge dropped to 45.1, its lowest since February, with businesses in part blaming the decision by British finance minister Rachel Reeves to make them pay more in social security contributions for their staff from April.

“Particularly worrying is the sustained impact of the budget measures on employment,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.

“Higher staffing costs have exacerbated firms’ existing concerns over payroll numbers in the current environment of weak demand, resulting in another month of sharply reduced headcounts in July.”

Worries about weak demand were also weighing on hiring decisions, S&P Global said.

The BoE is expected to cut interest rates for the fifth time in 12 months on August 7 as it focuses on signs of a slowdown in the jobs market, even as inflation remains above the central bank’s 2% target and rose to 3.6% in June.

Williamson said Thursday’s survey suggested Britain’s economy was growing at a quarterly pace of just 0.1% with a risk that it could prove weaker.

However, the PMI underscored the BoE’s dilemma with growth in prices charged by firms speeding up for the first time since April as suppliers sought to offset some of the tax increase and higher wage bills.

The PMI for the services sector slipped to 51.2 in July from June’s 52.8. The manufacturing sector PMI rose for a fourth month in a row to 48.2 from 47.7 but remained in contraction territory for a 10th consecutive month.

(Writing by William Schomberg; Editing by Joe Bavier)