UK recession feared as inflation ‘leaks lifeblood’ of firms
The risks of Britain heading for an economic recession increased on Friday after a survey showed business activity shrinking at one of the fastest rates since the financial crisis.
Private sector companies said that output and employment fell at the sharpest rate – excluding during the pandemic – since 2009.
Manufacturers said that numbers of new orders fell at levels not seen since the same year, according to the closely watched index compiled by the credit rating agency S&P and the Chartered Institute of Procurement and Supply (CIPS).
Chris Williamson, of S&P Global Market Intelligence, said: “The disappointing results for September mean that a recession is looking increasingly likely in the UK.”
He said the steep fall in output was consistent with GDP contracting at a quarterly rate of more than 0.4 per cent.
Emphasising the severity of the 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.
Dr John Glen, of CIPS, said: “Policymakers are likely to feel concerned at this month’s figures, which echoed surveys seen in the last economic crash more than a decade ago. Businesses felt the impact of subdued market conditions and interest rate hikes, and reined back costs and capacity to stay afloat.”
Salary and energy costs were driving inflation, he added, saying: “This ongoing pressure is leaking the lifeblood out of private-sector business, so many will experience some relief that interest rates have remained the same this month.”
Martin Beck, an economic forecaster at the EY Item Club, said: “Bouncing along the bottom is likely to be a story which persists for the near term.”
Ashley Webb, of Capital Economics, said the fall in activity suggested that the economy “may already be in recession”.
He said the figures helped to explain why the Bank of England – which saw the data in advance – decided to keep interest rates on hold, adding that the figures “all but confirm that interest rates have peaked”.
He added: “The recent trend does support our view that a mild recession is under way.”
A separate survey by the Confederation of British Industry showed factory output fell and was expected to be stagnant for the rest of 2023.
