Economic recovery in the UK stalled last month, according to a closely watched survey that indicated business confidence and activity was dented ahead of the announcement of a new lockdown that comes into force on Thursday.
The IHS Markit /Cips purchasing managers’ index for services was 51.4 in October, a sharp drop from the 56.1 registered in September, signalling the slowest monthly growth in the country’s business sector since June.
Tim Moore, economics director at IHS Markit, said the UK service sector was “close to stalling even before the announcement of lockdown two”, as tighter restrictions on hospitality, travel and leisure hit demand across consumer-facing businesses.
“November’s lockdown in England and a worsening Covid-19 situation across the rest of Europe means that the UK economy seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021,” he said.
Any PMI reading above 50 indicates a majority of respondents report an expansion of business activity. However, last month optimism slipped to its lowest level since May with new business orders in services dropping for the first time since June.
Employment numbers decreased for the eighth month in a row across all sectors.
The final PMI figure fell from the flash reading of 52.3, which was published on October 23 based on 80 per cent of replies, suggesting respondents reported more sluggish activity and pessimistic prospects toward the end of the month.
However, the data do not reflect the full impact of the second national lockdown in England, which was announced on Saturday after responses had been collected.
Prime Minister Boris Johnson said the new lockdown — which will close pubs, restaurants, non-essential retailers, gyms and hairdressers — will continue until at least December 2. He described the decision-making behind the measures as a “constant struggle and balance which the government has to take between lives and livelihoods”.
Sam Fuller, director of Financial Markets Online, a trading education platform, said the data indicated the “scale of the hit” to both growth and business optimism, and increased pressure on the Bank of England’s Monetary Policy Committee, which will announce its next steps tomorrow.
October’s composite PMI, which includes services and manufacturing, also fell to 52.1 from 56.5, as optimism faltered, employment fell and new business activity across the private sector dipped for the first time in four months.
Samuel Tombs, chief UK economist at Pantheon Economics, said the downward revision showed the economy had no momentum even before the lockdown was announced, and estimated November gross domestic product would be 14 per cent below its pre-Covid January peak.