Britain could be living through its worst slump for centuries, a top Bank of England official has warned after grim economic data showed business activity crashing at its fastest pace on record.
The closely-watched IHS Markit/CIPS Flash UK composite purchasing managers’ index (PMI) plunged to a reading of 12.9 for April, from a reading of 36 last month as COVID-19 started to take its toll on output.
Anything below 50 signals a contraction.
The collapse in the UK services, manufacturing and composite PMIs – key measures of activity in the economy – are unlike anything you’ve ever seen before. Well, unless you’ve just seen the ones for France and Germany. Not just worse than the financial crisis. Leagues worse. pic.twitter.com/bfJZqgF7U0
— Ed Conway (@EdConwaySky) April 23, 2020
The performance was dragged down by widespread shutdowns in manufacturing and the powerhouse service sector, the report said.
Sky’s economics editor, Ed Conway, responded by saying the activity readings were unprecedented and “leagues worse” than the disruption caused to output following the crash following the financial crisis of 2008.
A Bank of England policymaker added to the gloom in a speech which warned the UK could be living through the worst economic slump for several centuries.
Gertjan Vlieghe, who sits on the interest rate-setting committee, said the recovery from lockdown would be likely to be U-shaped rather than one resembling a ‘V’ – or quick bounce back.
“Based on the early indicators, and based on the experience in other countries that were hit somewhat earlier than the UK, it seems that we are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries,” Mr Vlieghe said in a speech delivered online.
The PMI report said: “Around 81% of UK service providers and 75% of manufacturing companies reported a fall in business activity during April, which was overwhelmingly attributed to the COVID-19 pandemic.
“The small minority of manufacturers reporting output growth were mostly involved in medical supply chains or producers of food & drink.
“In the service economy, there were sporadic reports of growth in April among those with major clients in either online retail or the public sector.
“Mirroring the trend for private sector output, the latest survey also signalled survey-record declines in new orders, backlogs of work and employment.”
The vast majority of businesses were forced to either shut down or impose strict social distancing measures, including working from home, from 23 March as the UK lockdown got under way to limit the spread of coronavirus and protect the NHS.
But there is evidence a growing number of firms are looking for ways to re-open, with Aston Martin among companies reporting updated plans on Thursday,
The luxury carmaker said it was to restart work at its factory in South Wales from 5 May following safety guidance.
Housebuilder Taylor Wimpey said it had scheduled 4 May as the date for construction to resume on its building sites.
The scale of the damage prompted the Treasury to reveal on Thursday that it was seeking to borrow £180bn over the next three months alone to help meet its financing requirements including the cost of support packages for workers and businesses.
A scenario published by the Office for Budget Responsibility earlier this month suggested the collapse in output could result in a 35% dive in GDP in the second quarter – the three months to the end of June.
Chris Williamson, chief business economist at IHS Markit, said the PMI figures confirmed “fears that GDP will slump to a degree previously thought unimaginable in the second quarter”.
He added: “Simple historical comparisons of the PMI with GDP indicate that the April survey reading is consistent with GDP falling at a quarterly rate of approximately 7%.
“The actual decline in GDP could be even greater, in part because the PMI excludes the vast majority of the self-employed and the retail sector, which have been especially hard-hit by the COVID-19 containment measures.”
Separate PMI readings showed a similar picture for France and Germany, with the the 19-country eurozone as a whole seeing an economic contraction that would outpace the UK’s fall.