Businesses across Britain are preparing for a potential recession, as a recent survey reveals employment has experienced the swiftest decline since the financial crisis.
This month has seen a significant reduction in job numbers, as indicated by the most recent Purchasing Managers’ Index (PMI). Companies are grappling with escalating borrowing costs and diminishing demand, contributing to the downward trend.
The comprehensive survey conducted by S&P Global, a credit rating agency, disclosed a decrease in employment within the services sector, marking the first such dip since the onset of the pandemic.
Furthermore, the survey highlighted a pronounced decrease in business activity, with the PMI dropping to 46.8 in September from 48.6 in August, a decline that was more pronounced than anticipated by economists.
Receiving these survey results in advance, the Bank of England consequently decided to maintain interest rates at 5.25pc. Minutes from the Monetary Policy Committee’s meeting on Thursday noted the likelihood of weaker underlying growth in the latter half of 2023 than initially anticipated.
Chris Williamson, S&P Global’s Chief Business Economist, stated that the survey pointed to the “most significant employment decline since 2009”, excluding the pandemic period. He also noted the increasing probability of a recession in the UK.
He further explained, “The sharp decline in output indicated by the preliminary PMI data aligns with a potential GDP contraction of over 0.4pc quarterly, suggesting an extensive downturn that doesn’t promise any immediate recovery.”
Emphasizing the gravity of the UK’s declining situation, he commented that barring the pandemic lockdown months, “September’s downturn is the most severe since the peak of the global financial crisis in early 2009.”
The revelation of the PMI results follows the release of the most recent GDP figures, which indicated a contraction of 0.5pc in the economy in July.
Conversely, the findings also suggest a potential abatement in inflation.
According to the PMI, the expenses incurred by businesses and the prices they levied on customers witnessed the most gradual ascent since the beginning of 2021. This observation aligns with data from the Office for National Statistics, demonstrating a deceleration of inflation to 6.7pc in August, down from 6.8pc in July, fostering optimism that the cost of living crisis might be nearing a resolution.
Ashley Webb of Capital Economics remarked that the recent decrease in inflation nearly verifies that the Bank of England is unlikely to elevate interest rates further. He added, “However, given our anticipation of only a gradual reduction in core inflation, we foresee the Bank maintaining rates at their zenith of 5.25pc well into 2024.”
Additionally, a distinct survey conducted by the CBI indicates a pronounced decline in export orders. The results revealed that output receded more rapidly than anticipated in the quarter ending September and is predicted to remain stagnant for the concluding months of the year.
