Britain has slid into the early stages of a recession that risks burning on for the whole of this year, a closely watched survey published today reveals.
S&P Global and the Chartered Institute of Procurement and Supply’s (CIPS) final purchasing managers’ index (PMI) for December hit 49.9, a slight rise from 48.8 from November, the organisations said today.
Despite the increase, the survey – a more timelier set of data that indicates where official UK GDP figures are headed – remains below the 50 point threshold that separates growth and contraction.
The final PMI was also downgraded from an earlier estimate.
Britain’s services industry has now been contracting for three months in a row, suggesting the economy has slipped into the official definition of a recession, two back-to-back quarters of contractions.
Services economy settles into recession
“December’s PMI data are consistent with the U.K. economy sliding into recession in [the fourth quarter],” Gabriella Dickens, senior UK economist at consultancy Pantheon Macroeconomics, said.
The Office for National Statistics estimates the economy shrunk 0.3 per cent in the three months to September. New quarterly GDP figures out next month are expected to confirm the recession.
Businesses are now shedding workers to contain costs in response to intense cost of living pressures sapping consumer spending.
“Firms now are reducing employment as the economy falls into recession,” Dickens added.
Spending power is on track for its largest drop on record over the next two years due to wages trailing soaring inflation, which is running at a 40 year high of 10.7 per cent.
Household spending is on track to drop more than one per cent, according to consultancy Capital Economics, driving the UK into an at least year long recession.
Tim Moore, economics director at S&P Global Market Intelligence, said: “UK service providers ended the year with another downturn in new orders as strong inflationary pressures and worries about the economic outlook sapped demand.”
Economists think inflation will gradually fall this year and end 2023 around six per cent. The PMI revealed businesses raised prices at the slowest pace in over a year and half, due to cost pressures easing and stalling demand.