Britain is likely to slide into a recession next quarter, or could already be in one, according to City economists following the publication of more miserable data documenting further declines in both the services and manufacturing sectors yesterday.
In July, the services sector shrank for the third month in a row, according to the CIPS/Markit’s Purchasing Managers’ Index, which is commonly used as a barometer of economic activity in the UK. The index, which covers service industries accounting for a third of the economy, actually rose slightly, but new business declined at the fastest rate since records began 12 years ago, dashing hopes of a recovery.
Meanwhile, official data showed manufacturing output fell by 0.5 per cent in June – the fourth consecutive monthly fall – putting the rate of annual decline at 1.3 per cent, which is the biggest fall since December 2005. Industrial production fell by 0.2 per cent, taking the annual rate to 1.6 per cent. Deutsche Bank chief economist George Buckley said he expects the sector to remain in recession next quarter, adding that the downside risks that the whole economy would slide into a recession next quarter had now risen.
Citigroup economist Michael Saunders agreed: “The economy is probably going into recession now and, with monetary policy hamstrung by high inflation, no early recovery worth the name is likely.”
Vicki Redwood, UK economist at Capital Economics, took a more sombre view, suggesting the “economy had ground to a halt” and that it was already in a recession.