The UK could be heading for a “deep recession”, according to data released on Monday.
The S&P Global and Chartered Institute for Procurement and Supply’s (CIPS) flash purchasing managers’ index (PMI) for October shows a reduction in UK private sector output for the third consecutive month. The decline in activity was the fastest recorded since January 2021, when the country was under Covid-19 lockdown.
Private sector firms also indicated a steep fall in business expectations for the year ahead, with optimism the lowest since April 2020.
At 47.2 in October — a 21-month low and down from 49.1 in September — the headline seasonally adjusted S&P Global/CIPS Flash UK Composite Output Index remained below the 50-point mark that separates growth and contraction.
Manufacturers are experiencing continued supply shortages alongside a general slowdown in demand. Meanwhile, services firms — which account for around two-thirds of the UK’s economic output — are seeing a decline in activity as consumers cut back on spending in response to soaring inflation.
“While the economic downturn has led to reduced upward pressure on prices, the weak pound and high energy costs meant that input cost inflation remains higher than at any time in the survey’s history prior to the pandemic,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“The resulting elevated, albeit easing, price pressures look set to drive the Bank of England into further aggressive interest rate hikes. On top of the collapse in political stability, financial market stress and slump in confidence, these higher borrowing costs will add to speculation of a worryingly deep UK recession.”
