Recession fears stoked by key survey showing economy 'running on empty'

Britain’s economy appears to be “running on empty” as plummeting business confidence adds to mounting signs of a looming recession, according to a widely monitored survey.

The latest S&P Global/Cips flash UK purchasing managers index (PMI) shows business expectations suffered the largest monthly decline since the start of the pandemic, with manufacturers and services firms reporting the lowest degree of business optimism since May 2020.

S&P warned such a low level of business optimism has historically “signalled an imminent recession” is on its way.

The preliminary PMI reading, which covers the manufacturing and services sectors, indicated that growth remained at its lowest level for more than a year in June.

The report showed a reading of 53.1 for June, unchanged from the 15-month low recorded in May. A reading above 50 indicates growth.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The economy is starting to look like it is running on empty. Business confidence has now slumped to a level which has in the past typically signalled an imminent recession.

“The weakness of the broad flow of economic data so far in the second quarter points to a drop in GDP (gross domestic product) which the forward-looking PMI numbers suggest will gather momentum in the third quarter.”

He said the UK “looks set for a troubling combination of recession and elevated inflation as we move into the second half of the year”, with the cost-of-living crisis ramping up over the months ahead.

Fears are building of a stormy period for the UK economy and consumers. Picture: David Mirzoeff/PA Wire

Inflation hit a fresh 40-year high of 9.1 per cent in May and the Bank of England warned last week it will rise past 11 per cent in October, when the energy price cap is lifted once again.

The central bank expects GDP to fall by 0.3 per cent in the second quarter, with some experts concerned the UK may be heading for another fall in the following three months, which would mark a technical recession as defined by two quarters in a row of falling output.

The PMI report shows new orders growth has hit its lowest point since February 2021, with the manufacturing sector seeing new orders drop at the fastest rate for two years.

In a bright spot, the survey shows job creation is the strongest in three months. But firms said they are still struggling to find suitable candidates.

Ben Laidler, global markets strategist at social investing network eToro, said: “The flash May purchasing manager indices from major global economies provide a timely, but depressing read of rising recession risks and still stubbornly high inflation pressures.

“The headwinds from Russia sanctions and high oil prices finally caught up with the eurozone. Its composite PMI fell more-than-expected to 51.9, closing in on the 50-break-even level below, which often signals a recession.”

Walid Koudmani, chief market analyst at financial brokerage XTB, noted: “Further decisions by central banks could be a key factor in determining how the situation develops but it seems like on both the consumer and the business side difficulties are increasing.”