Have interest rates topped out? That’s certainly the hope after dismal figures today showing that the UK economy contracted sharply in August, the biggest monthly fall in two and a half years.

The closely watched S&P Global’s Purchasing Managers’ Index (PMI) for the UK fell to 47.9 in August – far below the 50 mark which indicates the economy shrank. The reading was at a 31-month low, hardening fears that the country is tipping into recession

The PMI – which measures manufacturing and services output – saw a big fall in the manufacturing sector which slumped to a 39-month low of 42.5.

The all-important services sector slipped from 51.5 last month, indicating expansion, to a seven-month low of 48.7.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The fight against inflation is carrying a heavy cost in terms of heightened recession risks.” Williamson added: “A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival. The survey is indicative of GDP declining by 0.2 per cent over the third quarter so far.”

The survey also suggested that inflationary pressures continued to moderate in August, with input costs rising at the slowest pace for two and a half years.

However, businesses also reported that wage pressures were persistently strong.

The big question now is whether the Bank of England will go ahead with another interest rate hike at its next meeting in September, bringing the rate to 5.5 per cent. Hopefully, these latest figures will give cause to pause for fear of tipping the country into recession. Future interest rates dropped sharply on the news. 

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