A recession “is looking extremely likely” as the UK private sector has taken a bigger hit than expected this month, with new data showing it’s hit its worst performance since lockdown in early 2021.
New data shows the S&P Global/CIPS flash UK purchasing managers’ index (PMI) has fallen to 46.8 in September, down from 48.6 in August.
The survey is closely watched by the Bank of England and Treasury as a high-frequency gauge of activity in the economy.
The data is often used when they are setting interest rates, among other things.
It works by assigning a score to a sector, with any score below 50 being thought to show contraction. The further away from 50, the faster the decrease.
Economists had expected the private sector to continue to contract but not by this much.
The data suggests that although the manufacturing sector is struggling more than the services sector, the gap narrowed this month.
Service providers reported their fastest rate of decline since January 2021.
Chris Williamson, chief business economist at S&P Global Market Intelligence said: “The disappointing PMI survey results for September mean a recession is looking increasingly likely in the UK.
“The steep fall in output signalled by the flash PMI data is consistent with GDP contracting at a quarterly rate of over 0.4 percent, with a broad-based downturn gathering momentum to hint at few hopes of any imminent improvement.
“Underscoring the severity of the UK’s deteriorating situation, September’s downturn is the steepest since the height of the global financial crisis in early 2009 barring only the pandemic lockdown months.
“The survey had warned that a revival of growth in the second quarter looked unsustainable, and 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.”
On Thursday, the Bank of England downgraded its forecast for the UK economy.
It had previously expected 0.4 percent growth in gross domestic product (GDP) in the third quarter, but this was revised to 0.1%.
