British Companies Face Tough September as Unemployment Rises and Recession Looms
A survey released on Friday has revealed that British companies experienced a challenging September, with rising unemployment and the looming risk of recession. The findings of the survey, conducted by the UK S&P Global Purchasing Managers’ Index (PMI) for the services sector, have shed light on the reasons behind the Bank of England’s decision to halt its series of interest rate hikes this week.
The preliminary “flash” reading of the PMI for the services sector dropped from 49.5 in August to 47.2 in September, falling below the 50-point threshold that separates growth from contraction. This represents the lowest PMI score since the pandemic lockdown in January 2021 and is lower than all the forecasts in a Reuters poll of economists, which had predicted a reading of 49.2.
The PMI survey is closely monitored by the Bank of England and the Treasury as it provides a high-frequency measure of economic activity. The data company, S&P Global, stated that the figures are consistent with a decline in quarterly economic output of about 0.4%.
Apart from the impact of the ongoing COVID-19 pandemic, the index has not dropped to such a low level since the Global Financial Crisis. Furthermore, the gauge of employment within the survey experienced its largest decline on record, excluding the pandemic.
Members of the Bank of England’s rate-setting committee had access to the survey data before making their decision to keep interest rates on hold at 5.25% this week.
Chief Business Economist at S&P Global, Chris Williamson, expressed concern about the implications of the disappointing PMI survey results for September. He stated that “a recession is looking increasingly likely in the UK.”
The survey also revealed a further decline in inflation pressure from companies, despite reports of strong wage growth. Williamson highlighted that “a major concern in the inflation outlook has been wage growth, but with the survey now signaling the sharpest fall in employment since 2009, wage bargaining power is being eroded rapidly.”
While the PMI for the manufacturing sector showed some improvement in September, rising from 43.0 to 44.2, it still remains in contraction territory.
The composite PMI, which combines the manufacturing and services sectors, fell to 46.8 in September from 48.6 in August, marking the lowest reading since January 2021.
“The third quarter is indeed seeing a mounting toll on the economy from the reality of the increased cost of living and the recent rapid rise in interest rates,” Williamson added.
The survey results reflect the difficult economic conditions faced by British companies and highlight the potential challenges ahead. As the Bank of England opted to leave interest rates unchanged, policymakers will likely closely monitor the situation in the coming months to assess the need for further measures to support the economy.
More detail via Reuters here… ( Image via Reuters )