UK at heightened risk of recession after key indicator shows market contracting

The UK is at a heightened risk of recession, economists have warned, after the latest purchasing managers index (PMI) showed a the private sector contracted faster than expected this month, with the worst economic performance since the covid lockdowns of early 2021.

Companies are also downsizing their workforces at the fastest rate since 2009, apart from the extraordinary months of pandemic lockdowns.

The PMI - seen by economists as one of the key predictors of economic activity - works by assigning a score to a sector, with any score below 50 being thought to show contraction. The further away from 50, the faster the contraction.

Hide Ad
Hide Ad

Yesterday’s data showed the PMI falling to 46.8 in September, down from 48.6 in August.

People carrying shopping bags.People carrying shopping bags.
People carrying shopping bags.

Economists had expected the private sector to continue to contract but not by this much.

It comes as further new data from the Office for National Statistics showed around four in 10 UK adults are already finding it “Very or somewhat difficult” to afford energy bills, before the winter months even start.

Around half of those asked said they were using less gas or electricity in their homes because of the cost of living.

Hide Ad
Hide Ad

The PMI data suggests that although the manufacturing sector is struggling more than the services sector, the gap narrowed this month.

Service providers reported their fastest rate of decline since January 2021.

“The disappointing PMI survey results for September mean a recession is looking increasingly likely in the UK,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“The steep fall in output signalled by the flash PMI data is consistent with GDP contracting at a quarterly rate of over 0.4 per cent, with a broad-based downturn gathering momentum to hint at few hopes of any imminent improvement.

Hide Ad
Hide Ad

“Underscoring the severity of the UK’s deteriorating situation, September’s downturn is the steepest since the height of the global financial crisis in early 2009 barring only the pandemic lockdown months.”

The troubling manufacturing data comes as Unite launched a “save our steel” campaign, urging the Government to step in to protect an industry in South Yorkshire which is so closely linked with myriad other manufacturing sectors.

On Thursday, the Bank of England downgraded its forecast for the UK economy.

It had previously expected 0.4 per cent growth in gross domestic product (GDP) in the third quarter, but this was revised to 0.1 per cent.