Recession fears grow as UK business activity shrinks

Economists have warned of a “heightened” threat of recession after new figures revealed that UK companies suffered an unexpectedly sharp downturn throughout August.

Other than the Covid disaster, the most recent buying managers’ index (PMI) factors to one of many sharpest falls in Britain’s enterprise exercise for the reason that 2008 banking disaster.

The S&P World-CIPS Flash UK PMI fell from 50.8 in July to 47.9 in August on the again of decrease orders and better borrowing prices for UK companies – with each the providers sector and manufacturing seeing shock contractions.

Chris Williamson, chief enterprise economist at S&P World Market Intelligence, mentioned it confirmed that the struggle in opposition to inflation by means of larger rates of interest was “carrying a heavy value by way of heightened recession dangers”.

He added: “A renewed contraction of the financial system already seems to be inevitable, as an more and more extreme manufacturing downturn is accompanied by an extra faltering of the service sector’s spring revival.”

It comes as Citi mentioned it now anticipated the UK to fall into recession. The funding financial institution forecast that international progress in 2024 will gradual to beneath 2 per cent, sparked by recessions within the UK and the US and a slowdown in China.

The PMI information confirmed the primary month-to-month decline since January and was considerably beneath expectations, following a consensus amongst economists of a 50.3 studying. Any studying above 50 is taken into account to point out that the sector is rising, whereas something beneath represents a contraction.

Mr Williamson mentioned it confirmed that GDP would fall by 0.2 per cent within the second quarter, with “worse prone to come”. He added: “Barring pandemic lockdown months, this is without doubt one of the steepest contractions for the reason that international monetary disaster.”

John Glen, CIPS’ chief economist, mentioned that prime rates of interest “are beginning to have their supposed impact of dampening demand and lowering inflationary pressures”.

Martin Sartorius, the CBI’s principal economist, mentioned: “With output volumes contracting at their quickest tempo for the reason that Covid-19 pandemic and order books deteriorating, this survey makes for gloomy studying for producers.”

It comes because the chancellor, Jeremy Hunt, is as soon as once more below stress from Tory MPs to announce tax cuts on the autumn Funds, after UK authorities borrowing was proven to be decrease than anticipated final month.

Former enterprise secretary Sir Jacob Rees-Mogg mentioned it uncovered “the continued failure of the OBR [Office for Budget Responsibility]” and left some headroom for tax cuts. “This may pay for the whole abolition of demise duties and go away billions to spare,” he added.

However Mr Hunt mentioned the federal government could be “sticking to our plan” – with borrowing nonetheless greater than 4 instances larger than a 12 months in the past, representing the fifth-highest July borrowing since data started.

Pat McFadden, Labour’s shadow chief secretary to the Treasury, informed Sky Information that he was “alarmed” at listening to Tory calls to “repeat” the type of unfunded tax cuts final seen in Liz Truss’s disastrous mini-Funds.

In the meantime, consultants and officers have sought to calm expectations of a post-Brexit UK-India commerce deal, which may increase Britain’s financial system, being agreed this autumn.

Worldwide commerce secretary Kemi Badenoch, who’s in India at this time for talks with G20 commerce and funding ministers, mentioned that the prospect of a free commerce settlement confirmed that the “voices of doom” had been incorrect.

However authorities sources have sought to minimize the probabilities of a deal being agreed earlier than Rishi Sunak’s deliberate go to to India in September – together with his ministers’ refusal to supply extra visas to Indian staff considered a sticking level.

Susannah Streeter, head of cash and markets at Hargreaves Lansdown, warned that such a commerce deal is prone to keep “tantalisingly out of attain” except the Tory authorities eases its stance on immigration.

A Division for Enterprise and Commerce spokesperson mentioned: “We’ve made good progress in closing chapters, and at the moment are laser-focused on items, providers, and funding.

“Whereas we can’t touch upon ongoing negotiations, we’re clear that we are going to solely signal when we have now a deal that’s honest, balanced, and in the end in the perfect pursuits of the British individuals and the financial system.”

Underneath Boris Johnson’s premiership, the federal government had mentioned it was aiming to finish a deal by Diwali in October 2022 – however that deadline was missed.