(qlmbusinessnews.com via news.sky.com– Tue, 5th May 2020) London, Uk – –
A closely-watched survey shows an unprecedented slump for the dominant services sector during the first full month of lockdown.
The UK economy is heading for its biggest contraction “in living memory”, according to a report highlighting a slump in activity for the UK's powerhouse services sector.
The IHS Markit/CIPS Purchasing Managers' Index (PMI) for April suggested a contraction in quarterly GDP (gross domestic product) of at least 7%.
But it cautioned that the number would be expected to be far worse because its survey data does not cover large parts of the services economy including retail and activity among the self-employed – among the hardest hit by the COVID-19 crisis.
The sector's PMI reading came in at its weakest level since it first started in 1996, dropping to 13.4 in April from 34.5 in March.
Any reading above 50 represents growth.
A composite reading, that included manufacturing, released almost a fortnight ago laid bare the effects of the lockdown on the UK economy – in place since 23 March – highlighting an unprecedented slump.
Tim Moore, economics director at IHS Markit, said of the latest figures: “April's PMI data highlights that the downturn in the UK economy during the second quarter of 2020 will be far deeper and more widespread than anything seen in living memory.
“Historical comparisons of the PMI with GDP indicate that the April survey reading is consistent with the economy falling at a quarterly rate of approximately 7%, but we expect the actual decline in GDP could be even greater, in part because the PMI excludes the vast majority of the self-employed and the retail sector.
“Just one in five service providers managed to avoid a drop in business activity since March and those hardest hit by social distancing measures and travel restrictions often reported complete stoppages of business operations.”
The toll on the economy is acute because of massive government borrowing to pay for the series of support schemes on offer to businesses and individuals who are currently furloughed during the lockdown.
Government figures released on Monday showed the Job Retention Scheme was paying the bulk of wages due to 6.3 million people at a cost, to date, of £8bn.
Much depends on the timing of an easing in the lockdown – with details expected to be revealed on Sunday by the prime minister.
The Bank of England is due to give an update on its projections for the economy when it delivers its latest Monetary Policy Report this week.
A member of its rate-setting committee, Gertjan Vlieghe, has already suggested the UK could be living through the worst economic slump for several centuries with the recovery from lockdown likely to be U-shaped rather than one resembling a ‘V' – or quick bounce back.
A scenario by the Office for Budget Responsibility has pointed to the possibility of a 35% second quarter contraction in GDP with a leap in unemployment of two million.
Howard Archer, chief economic adviser to the EY ITEM Club, said he did not expect any further stimulus to arise from Thursday's meeting of the Monetary Policy Committee.
He said after the PMI reading: “We expect the economy to contract around 13% quarter-on-quarter in the second quarter on the assumption that there is some lifting of restrictions on activity during the quarter.”
Reporting James Sillars