UK risks double-dip recession amid second Covid lockdown | Business

The first snapshot of the UK economy during England’s four-week lockdown has shown evidence of a looming double-dip recession as tougher restrictions took a toll of large chunks of service-sector output.

The monthly survey from IHS Markit and Cips reported the steepest fall in activity since May, with the closely watched purchasing managers’ index (PMI) dropping from 52.1 to 47.4. A reading below 50 indicates that the economy is contracting.

In an echo of the impact of the nationwide curbs on activity in the spring, the flash IHS Markit/Cips estimate reported steep downturns for restaurants, bars, hotels and other businesses heavily reliant on serving consumers face to face.

The fall was smaller than economists had feared, and nowhere near as severe as in the spring, when the final PMI dropped to a record low of 13.8 in April. Even so, the 15.5% growth in the economy in the third quarter is expected to be followed by renewed contraction in the final three months of the year.

A mini-boom for manufacturers stockpiling goods ahead of a possible no-deal Brexit spared the UK from a steeper fall in activity. While output in the service sector dipped from 51.4 in October to 45.6, growth picked up among UK factories from 55.8 to 56.3.

The survey provided mixed news for the chancellor, Rishi Sunak, before the publication on Wednesday of spending plans for the next year.

While the fresh setback to the economy threatens to lead to higher unemployment this winter, businesses are confident that vaccine breakthroughs have made the outlook brighter for 2021. Optimism levels for the year ahead were at their strongest in five years, the report said.

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Chris Williamson, the chief business economist at IHS Markit, said: “A double dip is indicated by the November survey data, with lockdown measures once again causing business activity to collapse across large swathes of the economy. As expected, hospitality businesses have been the hardest hit, with hotels, bars, restaurants and other consumer facing service providers reporting the steepest downturns.

“Some comfort comes from the data suggesting that the impact of the lockdown has not been as severe as in the spring, and manufacturing has also received a significant boost from inventory building and a surge in exports ahead of the UK’s departure from the EU at the end of the year, providing a fillip for many companies. However, while the lockdown will be temporary, so too will this pre-Brexit boost.”

The PMI for the eurozone showed a similar pattern to the UK, with tighter restrictions and lockdowns resulting in a drop from 50 in October to 45.1 in November.

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