UK economy plunge in output is FINALLY slowing

The UK is mired in an ‘unprecedented downturn’ but the plunge in output due to coronavirus is finally slowing, new figures showed today.

The closely-watched IHS Markit/CIPS Flash UK PMI index has risen from an historic low of just 12.9 in April to 28.9 this month.  

Although the figures leave no doubt that UK plc is in recession – with anything below 50 representing a reduction in GDP – it suggests businesses are finding ways to operate despite the draconian lockdown.    

The government has been urging firms to get up and running as it edges towards easing the curbs, with millions of jobs at risk from the meltdown. Factories and construction sites have been told to re-start with protections in place to minimise risk to workers. 

The PMI contraction is still far deeper than the worst point of the credit crunch, when it fell to 38.1 in November 2008.

The grim picture came as new Office for National Statistics figures suggested 21 firms were still not trading at all in the fortnight to May 3. 

Some 61 per cent reported a decrease in turnover outside of normal range in England, compared with 66 per cent in Wales, 65 per cent in Scotland and 63 per cent in Northern Ireland. 

‘The UK economy remains firmly locked in an unprecedented downturn, with business activity and employment continuing to slump at alarming rates in May,’ said IHS chief business economist Chris Williamson.

‘Although the pace of decline has eased since April’s record collapse, May saw the second largest monthly falls in output and jobs seen over the survey’s 22-year history, the rates of decline continuing to far exceed anything seen previously,’ he said.

Hotels, restaurants and clothes makers were the hardest hit once again, however few companies have escaped from the effects of the virus.

Amid several data shocks, experts have begun to warn that the economic recovery is unlikely to be ‘v-shaped’.

Earlier this week Chancellor Rishi Sunak said an immediate bounceback was ‘not obvious’.

The sentiment was echoed today by Mr Williamson who said: ‘The UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer Covid-19 cases.’

CIPS group director Duncan Brock said: ‘No new orders, premises shut down and furloughed staff unable to return to work were at the heart of the desolation as business struggled to continue with two hands tied behind their back.

‘Even some heavy discounting by companies did little to offset their losses which are likely to be just the tip of the iceberg with businesses failing in increasing numbers.’

Bank of England Governor Andrew Bailey told MPs it would be ‘foolish’ to rule out negative interest rates – which would effectively mean institutions paying to keep cash in the bank. 

The central rate is already at an historic low of just 0.1 per cent, but in theory going further should encourage people to spend more rather than sitting on savings, as often happens in a recession. 

The signal comes as the UK joined the small group of countries that have sold bonds for negative rates, meaning the government will return slightly less to investors when the gilts mature.  

Amid rising fears about the impact of the pandemic on the global economy, the government’s OBR watchdog and the Bank have warned UK GDP could tumble by between 25 per cent and 35 per cent.