Recession ‘cannot be ruled out’ as business activity falls again

The closely-followed S&P Global/CIPS flash UK purchasing managers’ index (PMI) reported a reading of 48.6 for October.
Business activity contracted in October, according to new figures (David Davies/PA)
PA Wire
Henry Saker-Clark24 October 2023
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Activity in the UK’s private sector has fallen for the third consecutive month, leading economists to warn that a recession “cannot be ruled out”.

Influential new economic data shows that firms broadly saw a decline in output this month, with falls for both the services and manufacturing industries.

The closely-followed S&P Global/CIPS flash UK purchasing managers’ index (PMI) reported a reading of 48.6 for October, edging slightly higher than the 48.5 figure seen in September.

The flash figures are based on preliminary data. Any score below 50 is said to show that the sector is contracting.

Economists had forecast that the PMI would hit 48.7 for the month.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The UK economy continued to skirt with recession in October, as the increased cost of living, higher interest rates and falling exports were widely blamed on a third month of falling output.

“The overall pace of decline remains only modest, signalling a mere 0.1% quarterly rate of GDP decline, but gloom about the outlook has intensified in the uncertain economic climate, boding ill for output in the coming months.

“A recession, albeit only mild at present, cannot be ruled out.”

The latest report saw another modest decline for the services sector, with a reading of 49.2 for the month.

However, this was the most pronounced decline for the sector since January.

Surveyed firms blamed “subdued consumer confidence”, as well as the impact of higher borrowing costs following interest rate rises and weakness in the real estate industry.

Meanwhile, the manufacturing sector saw its eighth consecutive decline but, at 45.3, it was a slight improvement on last month.

There were also further signs of cooling in the UK jobs market, with firms reporting that employment decreased in October for the second month in a row.

An improvement in input cost inflation was not enough to stem the haemorrhaging of business margins, as higher salary demands were still present and rising fuel bills offset falling prices for raw materials

John Glen, Chartered Institute of Procurement and Supply

Nevertheless, business owners will find some cause for positivity from another slowdown in input price inflation, with dropped to its lowest level since the start of 2021 as inflation continues to slow.

John Glen, chief economist at the Chartered Institute of Procurement and Supply, said: “Redundancies were also increasing in number as staff cuts became one option in a range of cost-cutting measures.

“An improvement in input cost inflation was not enough to stem the haemorrhaging of business margins, as higher salary demands were still present and rising fuel bills offset falling prices for raw materials.”

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