Halt In Summer Recovery Likely To Result In Double-Dip Recession For UK Economy

Most recent economic data from the United Kingdom showed slowing growth for the dominant services sector last month which has made analysts predict a double-dip recession for the British economy this winter.

A recovery over the summer stalled in October for the services sector, which accounts for three quarters of economic activity, according to the latest IHS Markit/Cips monthly survey of the sector. That has increased pressure on the Bank of England to boost its stimulus programme.

Analysts predict that the BoE will announce a £100bn increase in quantitative easing (QE in which the bank will be pumping in money into the economy through acquisition of government debt from financial institutions.

While the policy of the UK government to imposed a tiered system of lockdowns has effectively stopped a return to the office across much of the UK, demand for hotels and restaurants has been cut down because of several months of falling consumer confidence, said IHS Markit which has tracked the rise in the number of Covid-19 cases.

In October, the purchasing managers’ index (PMI) for the services sector dropped to 51.4 compared to 56.1 in September which was lower than the consensus of City analysts and a pervious flash estimate of 52.3. PMI services index encompasses a range of industries from retail to hospitality and financial services. Compared to 56.5 in September, there was also a decline in October in the composite PMI, which includes the manufacturing sector, declined at 52.1.

The data from IHS was between 12 and 28 October prior to the announcement of the second nationwide lockdown, said Tim Moore, IHS’s economics director, and added that this data showed that the economy “seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021”.

A recession technically happens when there are two successive quarters of negative growth which happened for the UK economy in the first six months of 2020. And two downturns in quick succession is described by the term “double-dip”.

There was a decline for eight consecutive month in employment across the services sector in the UK. the PMI report said with a slump being particularly noted for the customer-facing service providers for sectors such as hotels, restaurants and catering. New orders fell for the first time since June.

“A lack of forward bookings in parts of the economy most affected by lockdown measures led to widespread reports of redundancies and another sharp fall in total employment numbers during October,” Moore said.

“Markit’s survey suggests the recovery essentially ground to a halt in October,” said Samuel Tombs, the chief UK economist at Pantheon Macroeconomics.

Lower GDP growth would reflect the impact he said, which, by the end of the year, he predicted would remain about 8 per cent lower than the pre-Covid peak.

 “There seems little doubt that a renewed national lockdown will cause the economy to contract again in the fourth quarter – and, very possibly, by an appreciable amount,” said Howard Archer, the chief economic adviser to the EY Item Club.

(Adapted from TheGuardian.com)



Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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