‘Companies in the UK’s private sector have been downsizing their workforce at the fastest rate since the global financial crisis, apart from the Covid-19 pandemic lockdowns, as output fell in September, according to data published by S&P Global.
The latest flash S&P Global Composite Purchasing Managers’ Index (PMI) figure for the UK slipped to 46.8, down from 48.6 in August, and reached a 32-month low. The reading was well below the 50-mark, which separates growth from contraction, and lower than economists expected, S&P said.
“The disappointing PMI survey results for September mean a recession is looking increasingly likely in the UK,” Chris Williamson, chief business economist at S&P Global Market Intelligence, warned.
“The steep fall in output signaled by the flash PMI data is consistent with GDP contracting at a quarterly rate of over 0.4%, with a broad-based downturn gathering momentum to hint at few hopes of any imminent improvement.”
The British jobs market is facing an “abrupt turnaround,” prompting companies to shed staff at the fastest pace since the aftermath of the 2008 global financial crisis, excluding the pandemic, S&P said.
“A major concern in the inflation outlook has been wage growth, but with the survey now signalling the sharpest fall in employment since 2009, wage bargaining power is being eroded rapidly,” Williamson added.
Overall, private sector business activity in the UK fell at the fastest rate since March 2009 as the cost-of-living crisis and surging borrowing costs dented demand, S&P concluded.
The British economy will shrink in both 2023 and 2024, The Guardian reported citing a study by the Washington-based Peterson Institute for International Economics (PIIE).
According to the report, persistent inflation, falling real incomes of low-income households, and a shortage of workers will result in a 0.3% drop in the country’s gross domestic product (GPD) this year, and a further 0.2% backslide next year.
“The UK won’t be in recession all of next year, but the recovery will be held back by higher-than-expected inflation and in response, the Bank of England will need to keep interest rates higher for longer,” PIIE president Adam Posen told The Guardian, commenting on the report.
Posen, who used to work on the Bank of England’s monetary policy committee, noted that the UK economy is also still weighed down by the after-effects of Brexit and will likely suffer from planned cuts to government spending next year.
Last week, the central bank refrained from hiking interest rates for the first time in nearly two years after a surprise drop in inflation in August to 6.7% amid weaker growth in food prices and a reduction in accommodation and air travel costs. However, UK inflation remains the highest among G7 economies.
Posen warned that more rate hikes are possible in the coming months if inflation doesn’t slow further. Karen Dynan, a co-author of the report, mirrored the institute’s warning and said it does not apply to the UK alone.
“While inflation appears to be receding in most countries, it remains decidedly above central bank targets. As a result, most central banks will need to keep their policy rates high over the coming year, with the resulting tight financial conditions holding back demand and slowing economic activity,” she stated.’