Key insights
- UK factory orders contracted at the fastest pace since September 2020, while expected selling prices surged. The BoE faces a dilemma: whether to raise rates to combat inflation from energy price shocks due to the Iran war, or hold steady given weak demand. This news has a slightly negative influence on US equities as it highlights global economic uncertainty and potential for stagflation, which could impact multinational corporations.
May 21 (Reuters) - British factory orders contracted this month at the fastest rate since September 2020 and expectations for selling prices surged, according to a survey on Thursday that illustrated the dilemma facing the Bank of England.
The Confederation of British Industry’s monthly balance of total new orders slid to -41 in May from -38 in April.
A gauge of expected selling prices rose to its highest since February 2023.
"Against an increasingly uncertain global backdrop, the conflict in the Middle East is feeding through to higher energy costs and renewed supply chain disruption, adding another layer of challenges for manufacturers, who are already grappling with weak demand," Cameron Martin, CBI senior economist, said.
A separate survey of manufacturers published earlier on Thursday by S&P Global showed British firms reported a rush of orders - but the increase was largely due to clients trying to get ahead of possible further price increases or supply chain problems linked to the Iran war.
The BoE is watching to see whether it needs to raise interest rates to snuff out the inflationary pressures sparked by the Iran war energy price shock or whether the hit to demand means any uptick in headline inflation proves short-lived.