Economic Activity Drops To The Lowest In The UK

Economic Activity Drops To The Lowest In The UK

A recent survey has revealed that economic activities in the United Kingdom dropped to the lowest levels since May due to to the latest COVID-19 lockdown and broader port disruption.

The flash IHS Markit/Cips purchasing managers’ index for services, a measure of economic health, fell to 38.8 in January compared with 49.4 in December.

The estimate was done based on data collected from January 12 to 20, revealing the lowest reading in eight months and far from the 45 level forecast by economists polled by Reuters. It also represents the third consecutive reading below 50, indicating that a majority of businesses are reporting a contraction in activity.

The downturn in services, accounting for about 80‰ of the economy, drove down the composite index, an average of services and manufacturing, to 40.6 in January from the 50.4 level recorded the previous month.

The services sector also recorded figures well below the expectations of analysts and lower than November results when official data revealed that the economy contracted 2.6% compared with the previous month.

A steep slump in business activity in January puts the lockdown UK economy on course to contract sharply in the first quarter of 2021, meaning a double-dip recession is on the cards,” said Chris Williamson, chief business economist at IHS Markit.

However, some sectors showed some level of resilience in the economy, especially when compared to the spring lockdown, when the composite PMI dropped to 13.8, as businesses adapt to social distancing measures.

The manufacturing sector put out results better than the services sector in January, with factories’ output rising marginally. However, the rate of expansion eased sharply compared with December, with manufacturers struggling with supply chain difficulties and port disruption.

Suppliers put in some of the slowest delivery times in the last 30 years as port delays and shipping shortages prevented the distribution of much-needed goods, compounded by mounting price rises as supply chains were overwhelmed.” – Duncan Brock, group director at the Chartered institute of Procurement & Supply (Cips).

Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, stated that the January PMI figures “provide more evidence that the current lockdown has damaged the economy more than November’s light-touch variety”.

He also issued a note of warning that the closure of schools and the cancellation of non-Covid-19 work by hospitals “will additionally depress GDP” especially as the PMI excludes activity in the retail and public sectors.

Businesses have also reported rising cost pressures as a result of the steepest increase in manufacturing sector input prices for nearly four years. Higher operating expenses, squeezed margins and lower demand have also contributed to accelerated job cuts in January.

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