UK economy ‘sucked into a black hole’ as lockdown takes a toll on businesses
The bulk of Britain’s economy “was sucked into a black hole” in March, as many businesses were forced to close and Brits stayed at home amid the government lockdown.
New data published yesterday showed that activity in the key services sector – the pubs, hotels and restaurants that make up 80 per cent of the economy – suffered their worst slump on record last month.
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The influential IHS Markit/CIPS purchasing managers’ index which measures activity in the sector scored an all-time low of 34.5 in March. That was down from 53.2 in February. A reading below 50 signals a contraction.
The contraction experienced was so sharp that it indicates the slide in activity was faster than during the financial crisis.
The economy is “now almost certain to experience a deep contraction in the second quarter of the year” according to the authors of the survey.
That would put the UK on course for a recession of unprecedented scale and depth, some economists predict. A recession is defined as two quarters of contraction in output or GDP in a row.
“The services sector was sucked into a black hole and flung into the unknown by the forceful impact of the Covid-19 coronavirus, affecting every area of supply chains from transport to purchasing levels and job creation,” said Duncan Brock at the Chartered Institute of Procurement and Supply which helped compile the survey.
Mr Brock added: “The likelihood of a global recession is now a given, though its duration and severity has yet to reveal itself. One thing is for certain, with the lowest business optimism for over 20 years, the immediate outlook for the services sector is beyond grim.”
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The fall in activity had a knock-on effect on jobs, with the companies surveyed shedding more employees than at any point since 2009, despite Government guarantees to cover 80 per cent of the salaries of furloughed workers.
Tim Moore, economics director at IHS Markit, said: “There were numerous reports from survey respondents that placing staff on furlough had helped to mitigate more widespread job losses in March.
“However, employment levels across the service sector still dropped at the fastest pace for more than a decade, reflecting some forced redundancies and the non-replacement of departing staff amid widespread hiring freezes.”
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