London business activity dives as growth dwindles

Ben Southwood
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THE UK looks set to crash back into contraction in the fourth quarter, as data out today reveals a fall in business activity in London and across the country.

The collapse in London is especially worrying – it dived on the Lloyds purchasing managers’ index (PMI) business survey from 52.1 to 49.1 – a 42-month low for the region responsible for about a third of the UK's output, and below 50, the crucial level indicating no change overall.

Overall, UK firms rated their activity at 49.6, a 3-month low, down from 51.2 in September.

This new release only adds to a swathe of gloomy statistics suggesting the rapid growth recorded in the third quarter was ephemeral and the UK will slide back into decline.

“October’s survey suggests a loss of business output momentum across the English regions since the summer, with London in particular seeing a much more subdued performance than in recent months” said David Oldfield at Lloyds.

Businesses were facing pressure as rising fuel and energy prices drove input price inflation in all nine English regions, in most of these at an accelerating pace – but strong competition stopped companies from passing these on.

And though firms in seven out of nine English regions were able to increase new orders, these increases were slower in five of the seven, and respondents warned of subdued international demand.

Still, Oldfield hailed the increased orders as evidence that businesses were “defying the winter blues”, which was especially impressive given the hikes in input prices.

This latest data, suggesting underlying decline, is in line with Sir Mervyn King’s judgement that the UK is in for a “zig-zag recovery.” Together with the winding down of the Olympic and Paralympic ticket sales effect – the one-off increase to GDP in the third quarter becomes a one-off decrease in the fourth quarter as the boost is no longer there – it suggests that headline UK GDP could decline.

If GDP did decline in the fourth quarter, this would not be a recession – a recession is defined as two consecutive quarters of contraction.