The UK’s economic downturn has worsened in October, with growth in the private sector slowing to a 21-month low.
Output declined for the third month running, following a period of political turbulence that has dragged on the financial markets.
The S&P Global/CIPS flash UK composite purchasing managers index (PMI) showed a reading of 47.2 in October; below September’s 49.1 reading.
Any score below 50 is considered a contraction for the economy, while anything above is seen as growth.
The index showed that there was a steep fall in output in October, as manufacturers continued to grapple with supply shortages and a slowdown in demand.
Meanwhile, business activity across the services sector - which includes hospitality like restaurants and pubs - declined for the first time in 20 months and at the fastest pace since January 2021.
The survey asked thousands of businesses about their trading each month and is closely watched around the world.
Squeezed household budgets, recession concerns and delayed business investment decisions due to political uncertainty were all cited as factors leading to lower output this month.
The CIPS said that the decline was “no great surprise” given that businesses are worried about politics, rising interest rates and historically high costs.
As a result, optimism levels amongst manufacturers and within the service sector slumped to a two-and-a-half year low.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said that aside from during the Covid lockdowns, the index was the lowest since March 2009.
“October’s flash PMI data showed the pace of economic decline gathering momentum after the recent political and financial market upheavals.
“The heightened political and economic uncertainty has caused business activity to fall at a rate not seen since the global financial crisis in 2009 if pandemic lockdown months are excluded.
“Gross domestic product therefore looks certain to fall in the fourth quarter after a likely third quarter contraction, meaning the UK is in recession.
“Business confidence has, meanwhile, collapsed, sliding to a level rarely seen before in 25 years of survey history, meaning companies are becoming increasingly nervous about the outlook.”
Staff hiring was hailed as a relatively “bright spot” in October as employment numbers were boosted by firms’ post-pandemic recovery plans. Nonetheless, the rate of private sector job creation was the slowest for 20 months.
Meanwhile, initial optimism on London’s markets was short-lived, as both the pound and the FTSE 100 pared back some of their earlier gains, after Boris Johnson ruled himself out as prime minister.
The FTSE 100 started the day with a 0.5% rise, pushing it above the 7,000-point mark for the first time in a week, but it later gave back all and then some of its gains.
The good fortunes turned around less than an hour after opening, pushing as low as 6,915, down 0.8% compared to Friday’s close.
The pound continued a multi-day rise, building from its low of below 1.11 dollars at about midday on Friday to reach close to 1.14 as stock markets opened after the weekend.
However, the gains were later pared back to a little over 1.13 dollars per pound, up 0.1% on the day.
The story was similar for the gilt market. The interest rate on a 30-year UK Treasury gilt - which determines how much the UK Government pays on its debt - fell by nearly 0.2 percentage points to about 3.9%, but later rose again to 4%.
The movements follow the decision of Johnson not to seek his party’s nomination to take the job again, even after a weekend of hitting the phones to try to drum up support.
Johnson claimed he had the support of more than the 100 MPs needed to get through to the next round, which would have been likely to have pitted him against Rishi Sunak.
However, on Sunday he said that seeking the top job “would simply not be the right thing to do”, adding that the Conservative party would be too split should he take over.
It leaves the former chancellor as the frontrunner in the race for No 10 Downing Street, and he could even win later on Monday without a membership vote, if no-one else manages to get support from more than 100 MPs.
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