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UK Businesses Report Decline in Activity as Recession Risk Looms

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UK Businesses Report Decline in Activity, Raising Risk of Recession

Britain’s businesses have reported a further decline in activity this month, according to a survey, highlighting the risk of recession as the Bank of England prepares for its upcoming interest rate decision. The “flash” preliminary reading of the S&P Global UK Purchasing Managers’ Index (PMI) for the services sector fell to 49.2 in October, down from 49.3 in September. This marks the lowest reading since January and the third consecutive month below the 50 no-change mark.

Contrary to economists’ expectations of an unchanged reading, the survey’s gauge of new business dropped to its lowest level since November last year. However, the recent deterioration in employment has shown signs of easing. Services companies reported the smallest increase in input costs since February 2021, although selling prices rose at a slightly faster rate.

Earlier labour market data also revealed a decline in the number of employed people and a rise in unemployment. The PMI survey further indicated an increase in redundancies. Overall, the survey indicated a quarterly decline in economic output of around 0.1%, with optimism in boardrooms reaching its lowest point this year.

Ruth Gregory, deputy chief UK economist at consultancy Capital Economics, stated, “This supports our view that a mild recession is underway and that the Bank of England has finished hiking interest rates.”

Readings from France and Germany suggest a worsening downturn in the eurozone. These findings are expected to strengthen the belief that the Bank of England will maintain interest rates at their current level for the second consecutive meeting on November 2. Governor Andrew Bailey recently stated that recent data has aligned with the Bank of England’s expectations.

A Reuters poll of economists revealed that just over a third of them believe a recession is likely. The PMI for the manufacturing sector rose to 45.2 in October, up from September’s 44.3, marking a three-month high. However, it still indicates a rapid contraction in output. Furthermore, manufacturers’ selling prices contracted at the fastest rate since February 2016. The composite PMI, which combines services activity and manufacturing output, inched up to 48.6 from 48.5.

The latest survey data adds to concerns about the UK’s economic prospects, as well as the potential impact of ongoing Brexit negotiations. The Bank of England’s interest rate decision next week will be closely watched by businesses and investors alike, as they assess the future trajectory of the UK economy.

More detail via Daily Mail Online here… ( Image via Daily Mail Online )

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