UK services sector ‘close to stalling’ as coronavirus cases surge
The recovery in the UK services sector slowed sharply in October as a surge in coronavirus cases and new restrictions knocked the economy, a survey has shown.
The IHS Markit/Cips services purchasing managers’ index (PMI) – a closely followed measure of the sector’s health – fell to 51.4 in October, down heavily from 56.1 a month earlier.
It remained over 50, which traditionally indicates the sector grew, but was lower than an initial estimate. It was the worst reading since June for services, which make up about 80 per cent of the economy.
The responses to the survey were collected before Prime Minister Boris Johnson announced a new lockdown for England at the weekend, however.
Pubs, restaurants, gyms and non-essential shops will have to close from Thursday. Economists say the new measures will hit the UK economy hard. It makes it likely that the services PMI gauge will slump into negative territory next month.
Forecasters are already downgrading their growth predictions. For example, Goldman Sachs now thinks the economy will shrink by 2.4 per cent in the final quarter. It previously predicted 3.6 per cent growth.
“The UK service sector was close to stalling even before the announcement of lockdown two in England,’ said Tim Moore, economics director at IHS Markit.
Moore said the tiered coronavirus restrictions introduced last month hit consumer-facing services businesses.
In particular, the hospitality, transport and leisure sectors widely reported a drop in demand. This contributed to firms laying off workers for the eighth consecutive month, IHS Markit said.
UK economy fares slightly better than Eurozone
Another IHS Markit PMI survey out this morning showed that the Eurozone services sector fell into decline in October.
Coronavirus cases have surged across the continent, causing governments including Germany and France to put new lockdowns in place.
In the UK, the government has extended economic support. In particular, the furlough scheme that pays 80 per cent of workers’ wages, will carry on for November.
Yet Duncan Brock, group director at Cips, the Chartered Institute of Procurement & Supply, said the support “may not be enough” for many businesses to survive.
He said the services sector was set to enter a “deep freeze” next month during the second lockdown.