Economic recession ‘gathers momentum’ as UK manufacturing falls

Output fell for the third month in a row after a period of political turbulence dragged into financial markets.

Influential S&P Global/ CIPS the flash composite purchasing managers’ index (PMI) in the UK was 47.2 in October, down from September’s reading of 49.1.

It also missed the market consensus of 48.0, although analysts at Pantheon Economics had forecast a higher PMI 47.0, reflecting political and economic uncertainty affecting private sector business.

Any score below 50 is considered a contraction in the economy, while anything above is considered growth.

The index showed output fell sharply in October as manufacturers continued to struggle with supply shortages and slowing demand.

Meanwhile, business activity across the entire service sector, which includes hospitality such as restaurants and pubs, fell for the first time in 20 months and at the fastest pace since January 2021.

The survey asked thousands of businesses about their trade every month and is closely watched around the world.

Squeezed household budgets, recession worries and delayed investment decisions due to political uncertainty were all cited as factors behind the decline in output this month.

CIPS said the decline “didn’t come as a big surprise” given that businesses were concerned about politics, rising interest rates and historically high costs.

As a result, the level of optimism among manufacturers and in the service sector fell to a two-and-a-half-year low.

Chris Williamsonchief business economist at S&P Global Market Intelligence, said that outside of the Covid lockdown, the index was the lowest since March 2009.

He said: “October’s flash PMI data showed that the pace of the economic downturn is gathering momentum following the recent political and financial turmoil.

“Increased political and economic uncertainty has caused business activity to fall at a rate not seen since the global financial crisis in 2009, excluding months of pandemic lockdowns.

“Gross domestic product (GDP) is therefore certain to fall in the fourth quarter after likely contracting in the third quarter, meaning the UK is in recession.

“Meanwhile, business confidence has collapsed to levels rarely seen in the 25-year history of research, meaning companies are increasingly nervous about the outlook.”

Hiring in October was seen as a relatively “bright spot” as employment increased thanks to companies’ plans to recover from the pandemic.

Still, the pace of private sector job creation was the slowest in 20 months, the survey showed.