News | Published October 03 2019

UK recession risk "heightened" according to PMI index figures

The IHS Markit/CPS Purchasing Managers’ Index for the services sector fell in September, indicating that the UK economy may have entered recession.

The PMI for services fell to 49.5 for September, its lowest reading for six months. The 50 level is the line for dividing growth from expansion.

September’s PMI across all sectors was down to 48.8, the lowest since the month after the EU referendum of June 2016.

The figures suggest the economy shrank 0.1 per cent in the three months to September after a 0.2 per cent contraction in Q3, triggering a technical recession.

Economics experts have advised that the statistics be treated with some scepticism after official statistics released in September had suggested that the UK would avoid a technical recession.

The Office for National Statistics had indicated that growth was flat in the three months to July which counterbalanced the 0.2 per cent shrinkage in Q2.

There are also question marks over the tendency for PMI numbers to overestimate. After the EU referendum three years ago, PMI data suggested a sharper economic downturn than what actually materialised.

Samuel Tombs, leading UK economist at Pantheon Macroeconomics, said: “The [PMI] survey's poor track record recently means its recession signal should not be believed. Markit's services survey has been far too downbeat over the last year.”

However, senior UK economist Ruth Gregory at Capital Economics, suggested the figures were a warning of recession which indicate that “growth in the biggest part of the economy has fizzled out”.

IHS Markit economist Chris Williamson echoed these concerns, saying that the figures show a “heightened” risk of the UK economy entering recession.

He said: “Coming on the heels of a decline in the second quarter, [this] would mean the UK is facing a heightened risk of recession.

"September's decline is all the more ominous, being the result of an insidious weakening of demand over the past year rather than a sudden shock.”

Ongoing uncertainty surrounding the UK’s Brexit path, current tensions in the global market from the US-China trade war and a lack of growth in the eurozone were factors earmarked for blame.

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Authored by

Scott Challinor
Business Editor
October 03 2019

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