Liam Halligan: Is the UK economy stagflating?

In September, British factories suffered their weakest month since February - when the country was still largely locked down.

That’s according to a highly-influential survey of business leaders, which underscores the now serious impact of supply chain problems and staff shortages for manufacturers.

The UK PMI survey – or Purchasing Managers Index – a long-established bellwether of where the economy is heading – reveals freight bottlenecks, staff shortages and ongoing delivery and port delays.

Work on export orders shrank for the first time in eight months and the growth in manufacturing jobs was the weakest since January – again, during the height of lockdown.

Now, PMI readings above 50 indicate growth – so manufacturing is still growing according to this survey. But this PMI measure has now fallen four months in a row. The latest official data also shows the broader economy is growing by a pretty feeble 0.1pc – and we’re meant to be in the middle of a post-lockdown rebound!

Last week, the Bank of England revised down its expectations for economic growth in the third quarter of 2021 – again due to supply constraints, which now of course, also include fuel shortages caused by panic buying and a reported lack of truck drivers.

As demand surges, supply bottlenecks are, of course, also pushing up prices. Retail inflation is expected to reach 4pc in the coming months. Input inflation – the prices that factories and others pay for materials and everything else they need to make the goods they sell us – is running at 10pc.

The crisis choking Britain's supply chains will delay the economic recovery until next year, says Bank of England Governor Andrew Bailey. And, over recent days, sterling has lost grounds, amidst fears that Britain faces what economists call stagflation – a combination of falling growth and rising prices, something we haven’t seen since the dark days of the early 1980s.

Is that alarmist, or should we take the threat of falling growth combined with high inflation seriously?

And that’s your “On The Money” question today.

Is the UK facing stagflation?