Key Insights
- Is the UK heading towards a recession? UK’s PMI fell to 46.8 in September, its lowest level since 2021, indicating a significant decline in economic activity.
- Analysts suggest that the likelihood of a recession in the UK has increased, with some predicting a GDP contraction of over 0.4% for the quarter.
- Rising costs of living, rapidly increasing interest rates, and ongoing inflation concerns are contributing to the economic challenges.
Economic activity in the UK is falling at the fastest rate since January 2021, and the likelihood of a recession has increased in the country, according to a study by S&P Global.
The Purchasing Managers’ Index (PMI) fell to 46.8 in September from 48.6 in August: this is the lowest figure in the last two and a half years. The fall occurred against the backdrop of weakening activity in the services sector and a decline in production.
The PMI was worse than the forecast of 48.7 by economists polled by Reuters, and well below 50, indicating a contraction in activity for most businesses, the Financial Times writes.
UK Faces Possible Recession Amidst Economic Decline
S&P Global Market Intelligence chief business economist Chris Williamson said the disappointing September figures suggested a recession in the UK was “becoming more likely“.
Williamson said the data equates to a contraction of more than 0.4% in GDP for the quarter, with the broad contraction gaining momentum. Some economists warn that PMIs do not accurately reflect output, the FT said.
The British central bank reviewed the latest PMI data for September before unexpectedly deciding to keep interest rates at 5.25%, Williamson said. In his opinion, this could be influenced by signs of a possible recession and a sharp drop in employment.
The researcher warned that while the first two quarters saw economic growth, the third saw a negative impact on the economy due to real increases in the cost of living and rapidly rising interest rates.
PMI data for September also indicate that inflation will continue to decline in the near term, Williamson said. According to him, the rise in prices for raw materials has noticeably decreased, despite the increase in fuel prices. The rise in inflation was the smallest since 2021, although it is still above the pre-coronavirus pandemic average, the study said.
Why Do Economists Predict a More Severe Recession in 2023?
At the start of 2023, more than 100 economists surveyed by the FT said the UK would face one of the worst recessions and weakest recovery of any G7 country.
Read also! Germany Faces Economic Challenges as Prolonged Recession Looms in 2023
In their opinion, due to the fact that the inflation shock caused by the pandemic and the “military special operation” in Ukraine will persist, the Bank of England will have to maintain high interest rates, and the government will have to pursue a tough financial policy.
Independent labor market economist John Philpott then suggested that the 2023 recession “will be felt much worse than the economic impact of the pandemic.”