by Xinhua writer Zhang Yadong

LONDON, March 6 (Xinhua) -- Declining new orders and rising costs have stalled growth in both Britain's manufacturing and service sectors, increasing the risk of the economy slipping further into stagflation.

MANUFACTURING, SERVICES SHOW WEAK GROWTH

S&P data revealed on Monday that Britain's Manufacturing Purchasing Managers' Index (PMI) fell to 46.9 in February from 48.3 in January, marking a 14-month low and the fourth consecutive month of contraction.

The service sector, though still expanding, remains below its long-term average. S&P data released on Wednesday showed that the Service PMI edged up slightly from 50.8 in January to 51.0 in February, below the historical average of 54.3 and market expectations of 51.1.

RISING COSTS BURDEN BUSINESSES

Britain's manufacturing and service sectors are struggling with soaring production costs.

S&P data indicates that while cost inflation in Britain's service sector eased slightly in February compared to January, it remained significantly higher than in the latter half of last year.

In February, about one-third of service sector respondents reported increased cost burdens, primarily due to rising wages and supplier price hikes. Manufacturing also faced similar cost pressures.

This trend aligns with Britain's broader inflationary trajectory. According to the Office for National Statistics (ONS), the Consumer Price Index (CPI) rose from 2.5 percent in December to 3 percent in January, exceeding market expectations. The core price index climbed from 3.2 percent in December to 3.7 percent in January, while the services price index surged from 4.4 percent to 5 percent, driven largely by rising education and housing costs.

DEMAND FALLS WITH DECLINING ORDERS

Demand has deteriorated sharply, with new export orders in manufacturing declining at the fastest rate in a year, particularly from Brazil, Europe, the Middle East and the United States.

The service sector is also struggling, as the lack of new projects has led to the steepest drop in new business since November 2022.

Foreign demand remains weak, with new overseas service orders falling at the sharpest rate since December 2021, as declining European demand offsets gains from Asia and the United States.

JOB CUTS ACROSS INDUSTRIES

To counteract rising costs and weaker demand, businesses in both service and manufacturing sectors have resorted to layoffs. February saw the steepest decline in manufacturing employment since May 2020, with job cuts in five of the past six months. The service sector followed suit, shedding jobs at the fastest rate since November 2020.

This aligns with Britain's latest labor market data. ONS reported that the unemployment rate stood at 4.4 percent in the fourth quarter of 2024, lower than market expectations but higher than both the previous quarter and the same period last year.

Meanwhile, hiring intentions of British businesses remain weak, with job vacancies falling for the 31st consecutive quarter, down by 9,000 from November 2024 to January 2025.

RISING STAGFLATION RISKS

"There has been a clear loss of growth momentum since last autumn and the survey's forward-looking indicators continue to suggest an elevated risk of stagflation on the horizon," explained Tim Moore, economics director at S&P Global Market Intelligence.

The Bank of England shares this concern. While Governor Andrew Bailey acknowledged better-than-expected economic performance in late 2024, he emphasized that underlying growth remains weak. The central bank projects that in 2025, Britain's economic growth will be around 0.75 percent.

Meanwhile, inflation remains stubborn. Monica George Michail, a research fellow at the National Institute of Economic and Social Research, expects CPI inflation to average 2.5 percent in 2025 before falling to the central bank's 2 percent target from 2026 onwards.

"We therefore anticipate only one more rate cut in the second half of this year, given inflationary pressures from the government stimulus, persistently strong wage growth and heightened global uncertainties," she said.