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The coronavirus blockade has driven manufacturing and service activity in the UK to drop to the lowest level on record, leading analysts to predict a slower more severe than “anything seen in living memory.”
The latest IHS Markit / Cips Composite Purchasing Managers ‘Managers’ index for the UK, a measure of economic performance in manufacturing and services, fell to 13.8 in April, the lowest number since the survey began more than two decades ago.
“April PMI data highlights that the slowdown in the UK economy during the second quarter of 2020 will be much more profound and widespread than anything seen in memory,” said Tim Moore, chief economic officer at IHS. Markit.
The reading is below 36 in March, but slightly higher than previous estimates of 12.9. A score below 50 means that most companies reported deterioration compared to the previous month.
Services performed worse, with the corresponding index falling from 34.5 in the month before to 13.4 in April, the lowest reading since the survey began in July 1996, but slightly above expectations.
Before the past two months, the record low for the services survey was a reading of 40.1 in November 2008.
April’s final manufacturing PMI, released last week, fell to a record low of 32.6 polls.
Nearly 80 percent of service sector respondents reported a drop in business activity during April, nearly double the record for the survey set in March.
Respondents attributed the reduction in activity levels to business closings, customer closings, or reduced sales due to a drop in nonessential spending.
About half of service sector respondents said their payroll numbers fell in April, in part due to the government’s job retention scheme. Many also warned that severe cash flow restrictions could lead to further job cuts among those who are suspended if support was not extended.
“The scale of this fall is baffling,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply, which conducts the survey with the IHS Markit. “A significant number of closing companies can now never reopen.”
Howard Archer, chief economic adviser to EY Item Club, an economic forecasting group, warned that the contraction of new orders and the decrease in delays and exit prices, all falling at a record rate of the survey, are a bad omen for the activity “in the short term in less”.
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A combination of lower payroll costs, fuel prices, and office overhead led to a drop in input costs for the first time since the IHS Markit survey began.
“Service providers widely noted that their business operations were unlikely to return to normal in the immediate future,” the survey said.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the fall in UK output could be more than the 7 percent suggested by IHS Markit as PMIs indicate the proportion of companies reporting a contraction, rather than the contraction size.
“Many companies have now experienced a large decrease in activity. . .[so]a larger drop of about 15 percent seems likely, “Tombs said.
Final PMI figures for April were released when the Society of Engine Manufacturers and Traders revealed that new car registrations in the UK decreased by 97.3 percent in April, the biggest drop on record when car rooms Exhibition closed and car buyers were confined.
The figures are presented ahead of a Bank of England monetary policy meeting during which new measures to support the economy could be agreed.
Kallum Pickering, a senior economist at Berenberg, said the central bank’s Monetary Policy Committee “is likely to hold firm for now, while re-emphasizing that the Bank of England is ready to do whatever it takes to meet its goal of 2 percent inflation and promoting a recovery. “
