Economic decline ‘gathers momentum’ as UK output slumps again
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The UK’s economic downturn has worsened in October, with growth in the private sector slowing to a 21-month low, according to new figures.
Output declined for the third month in a row following the protracted period of political turbulence that has dragged on the financial markets, following the disastrous unveiling of then-chancellor Kwasi Kwarteng and then-prime minister Liz Truss' controversial economic plans.
New chancellor Jeremy Hunt has since reversed Kwarteng's mini-budget almost in its entirety in an effort to stabilise the markets and save the pound from sinking further.
The influential S&P Global/ CIPS flash UK composite purchasing managers index (PMI) showed a reading of 47.2 in October, below September’s 49.1 reading.
Any score below 50 is considered a contraction for the economy, while anything above is seen as growth.
The index showed that there was a steep fall in output in October as manufacturers continued to grapple with supply shortages and a slowdown in demand.
Meanwhile, business activity across the services sector, which includes hospitality like restaurants and pubs, declined for the first time in 20 months and at the fastest pace since January 2021.
The survey asks thousands of businesses about their trading each month and is closely watched around the world.
Squeezed household budgets, recession concerns and delayed business investment decisions due to political uncertainty were all cited as factors leading to lower output this month.
The CIPS said that the decline was “no great surprise” given that businesses are worried about politics, rising interest rates and historically high costs.
As a result, optimism levels amongst manufacturers and within the service sector slumped to a two-and-a-half year low.
October's score also fell short of the 48.0 market consensus, although analysts at Pantheon Economics had predicted a more accurate PMI of 47.0, reflecting the political and economic uncertainty that is taking its toll on private sector businesses.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said that aside from a period during the Covid lockdowns, the index was now at its lowest since March 2009.
He said: “October’s flash PMI data showed the pace of economic decline gathering momentum after the recent political and financial market upheavals.
“The heightened political and economic uncertainty has caused business activity to fall at a rate not seen since the global financial crisis in 2009 if pandemic lockdown months are excluded.
“Gross domestic product (GDP) therefore looks certain to fall in the fourth quarter after a likely third quarter contraction, meaning the UK is in recession.
“Business confidence has, meanwhile, collapsed, sliding to a level rarely seen before in 25 years of survey history, meaning companies are becoming increasingly nervous about the outlook.”
Staff hiring was hailed as a relatively “bright spot” in October, as employment numbers were boosted by firms’ post-pandemic recovery plans.
Nonetheless, the rate of private sector job creation was the slowest for 20 months, the survey revealed.
In September, the Bank of England announced that it would hike interest rates to their highest level since 2008 and indicated that it believed the economy was already in recession at that time.
Only a few days after the Bank's statement, Kwarteng announced his mini-budget which almost immediately sent the markets into a panic and the pound into freefall. The reaction to the government’s economic plans was almost overwhelmingly negative and saw the pound sink to an all-time low against the US dollar, with market confidence taking a hammering.
In August, it was reported that the cost-of-living crisis and the looming spectre of recession precipitated by soaring energy bills was having unexpected effects, including people having to take on second jobs to pay the bills and brewery companies warning of mass pub closures in the face of a 300 per cent hike in energy costs.
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