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By William Schomberg
LONDON, April 3 (Reuters) - Britain's economy looks set for
a slump that in the short term could be deeper than during the
depression of the 1930s, as a survey showed the coronavirus
crisis caused a record downturn among services and manufacturing
firms in March.
The composite Purchasing Managers' Index covering the two
sectors fell to 36.0 from 53.0 in February and was weaker than a
preliminary 'flash' reading of 37.1, data firm IHS Markit and
the Chartered Institute of Procurement and Supply said.
The survey data were collected between March 12 and March
27, covering the period after Prime Minister Boris Johnson
ordered the closure of bars, restaurants, gyms and other
services businesses to slow the coronavirus outbreak on March
20.
Britain's dominant services industry suffered its sharpest
fall by far since the survey began in 1996. Its index sank to
34.5 from February's 53.2, and was also weaker than the March
flash reading of 35.7.
Sterling weakened almost half a cent against the dollar to
its lowest since March 31 after the news, which was only a bit
less bleak than the equivalent euro zone survey.
Andrew Wishart, an economist at Capital Economics, said the
PMIs were probably underestimating the hit.
"We are forecasting a 15% fall in GDP in Q2, a larger fall
in output than in the financial crisis or the Great Depression,"
he said.
"Our base case is that the recession won't be as protracted
as either of those episodes. But evidence that unemployment is
shooting up despite the government response raises the risk that
the recovery takes longer than we expect."
Tim Moore, economics director at IHS Markit, said job losses
had been mitigated by firms' use of a government scheme to
temporarily put staff on leave, rather than fire them.
Britain's government has said it will pay 80% of the wages
of workers who are furloughed by companies.
"However, employment levels across the service sector still
dropped at the fastest pace for more than a decade, reflecting
some forced redundancies and the non-replacement of departing
staff amid widespread hiring freezes," Moore said.
British Airways said on Thursday it had struck a
deal with its unions to suspend more than 30,000 cabin crew and
ground staff. Data on Wednesday showed around 950,000 people in
the United Kingdom have applied for welfare benefits in the two
weeks since Johnson shut down swathes of the economy.
The PMI survey showed the biggest drop in new work among
services firms and the bleakest business expectations in more
than 20 years of data collection.
Technology services were the only area to signal a rise in
business activity - possibly reflecting the stay-at-home order
for many people - but new workloads for tech firms dropped more
quickly than at any time since 2011.
A final PMI for Britain's manufacturing sector, published on
Wednesday, showed factory output shrank at the fastest pace
since the euro zone debt crisis in March.
(Writing by William Schomberg; Editing by Hugh Lawson and Toby
Chopra)
