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The British Economy May Be About to Enter Recession

Poorer than expected figures from the services sector have raised fears that the UK may be about to enter into recession.

The services industry makes up around 80% of the overall British economy. Therefore, the news that it contracted unexpectedly in September has caused widespread concern.

The Figures

The data in question comes from the IHS Markit/CPS purchasing managers' index for services. It shows a figure of 49.5 for September. This is below the all-important number of 50, which is seen as being the point that separates contraction and expansion.

49.5 also represents its lowest figure in six months. In August, it had sat at 50.6. Analysts had been predicting a September PMI of 50.3. In a Reuters poll on the subject, none of the experts had predicted such a low number.

This result is said to add weight to the option that the nation’s GDP will probably fall in the third quarter of 2019, possibly by 0.1%. If this were to happen, it would mean recession, as it follows on from a 0.2% contraction in the second quarter.

It is also expected that these worrying numbers lead to an increased chance of interest rate cuts. In a global sense, stagnating economies and trade wars are among the issues that have led to international debt recovery becoming an increasingly important subject for UK firms.

What About the Rest of the Economy?

While the figures for the services industry are poor, some other areas of the UK economy have been performing even more badly. With the manufacturing and construction numbers added in, the overall PMI for September fell from 49.7 to 48.8.

September also brought the fifth consecutive month of falling factory production rates. This trend isn’t limited to the UK though, as the EU region in general suffered a poor month in this respect.

As for the construction industry, falling employment rate and low levels of building activity paint a gloomy picture. The current downturn has been classed as the second worst decline seen in the last decade.

This means that the economy is in the worst shape it has been in since the month following the Brexit referendum. Going back further, 2009 was the last time that the PMI was as low as this.

These new figures were released the day after the FTSE 100 index suffered its biggest day of losses since 2016.

Is There a More Positive Outlook?

It is worth noting that the Office for National Statistics published more positive figures last month. They had lowered fears of recession by showing that the British economy grew quicker than had been expected in July.

In fact, a 0.2% decline in April to June had been followed up by a flat quarter showing neither growth nor contraction. The key figures for August are due to be published by the ONS shortly.

 

It seems clear that the approach to Brexit will have a major effect on the British economy for the rest of the year. Yet, the signs are that it is already worryingly fragile.