Economy on course for downturn deeper than anything seen in living memory

Britain’s economy is on course for a downturn deeper than anything seen in living memory, experts have warned, after a record fall in service sector activity.

Huge parts of the services sector have ground to a halt as a result of lockdown measures, such as here on Buchanan Street in Glasgow. Picture: John Devlin

The closely watched IHS Markit/Cips purchasing managers’ index (PMI) for services plummeted to 13.4 in April, by far the worst score since the survey started in 1996. Any reading below 50 denotes contraction.

Services makes up almost three-quarters of the UK economy although the PMI snapshot does not encompass the embattled retail sector.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: “April’s PMI data highlights that the downturn in the UK economy during the second quarter of 2020 will be far deeper and more widespread than anything seen in living memory.”

He said the score was consistent with a quarterly 7 per cent drop in the economy, but even that prediction may be optimistic.

“We expect the actual decline in GDP could be even greater, in part because the PMI excludes the vast majority of the self-employed and the retail sector,” Moore added.

The economy had already been under pressure in March when the survey returned a then record low of 34.5 as pubs and restaurants saw their trade dwindle, The previous record low was 40.1 in November 2008 amid the global financial crisis.

In April, the survey found that only one in five services companies managed to avoid a drop in activity when compared with March. Some firms, hit by total closures, said their business had totally stopped.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (Cips), said: “Though a further downturn was anticipated after last month’s historically low figures, the scale of this fall is unnerving.

“A significant number of businesses in shutdown now may never reopen. Even with some movement in the lifting of restrictions on business activity, the UK economy is not a tap that can just be turned on.”

One in seven companies said activity had been unchanged since March, largely thanks to continuity plans such as working from home.

“Survey respondents indicated a tentative upturn in their business expectations amid hopes that a gradual reopening of the economy can be achieved in the summer,” Moore added.

Ayush Ansal, chief investment officer at hedge fund Crimson Black Capital said: “November 2008 was a minor economic blip compared to April’s abyss.

“It will have been priced in by markets some time ago, but the precipitous drop-off in services output in April is still terrifying to behold.

“That business expectations have picked up slightly is more a reflection of our recalibration to chaos than hopes of an imminent rebound. The services sector has been shattered.”

Ulas Akincilar, head of trading at the online trading platform Infinox said: “By every possible measure, April was an excruciating month for the UK’s dominant services sector. Output, orders and employment all fell through the floor, and the only thing shielding the wider economy from total meltdown is the government’s colossal support package.

“But grim though this roll call of decline is, it is really just a continuation of the sharp drop seen at the end of March – and consequently it has been largely priced in by stockwatchers.

“Instead the markets are focusing on the one element of the services PMI data which changed between March and April – business sentiment.

“Against the odds, business expectations notched up. Time will tell whether this is a triumph of hope over reality. But for now, it’s clear that an increasing number of companies are fixating on the when, not if, Britain’s lockdown restrictions are eased.

“With the UK government expected to announce shortly a very gradual easing of the restrictions, there is a growing sense that the lockdown will be finite. Cold though it is, this comfort is giving businesses – and the markets – a lift.”

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