By David Milliken
LONDON, Oct 3 (Reuters) - Britain's economy appears to have
tipped into recession as firms brace for the risk of a
disruptive Brexit in just a few weeks' time, according to a
survey which showed the dominant services sector took an
unexpectedly sharp downturn last month.
Prime Minister Boris Johnson has promised to take Britain
out of the European Union by Oct. 31 come what may, despite
parliament passing a law ordering him to secure a new transition
deal to soften the economic blow.
Against this backdrop, September's IHS Markit/CIPS services
Purchasing Managers' Index (PMI) fell by more than any economist
predicted in a Reuters poll, tumbling to a six-month low of
49.5, below the 50 level that divides growth from contraction.
Combined with even weaker manufacturing and construction
surveys earlier in the week, September's all-sector PMI sank to
48.8 from 49.7, its lowest since the month after the referendum
decision to leave the EU in June 2016, and before that 2009.
IHS Markit said the figures suggested Britain's economy
shrank by 0.1% in the three months to September.
"Coming on the heels of a decline in the second quarter,
(this) would mean the UK is facing a heightened risk of
recession," IHS Markit economist Chris Williamson said.
Britain's economy shrank by 0.2% in the three months to June
- the first decline since 2012 - and a second quarterly
contraction would meet the recession definition used in Europe.
On Wednesday, Johnson sent new Brexit proposals to the EU
and said that unless the bloc compromised, Britain would leave
without a deal at the end of this month.
Leaving the EU without a deal risks causing major disruption
to trade, at least in the short term, due to the immediate
imposition of new tariffs and regulatory checks at ports.
Britain's economy is also slowing due to the trade conflict
between the United States and China.
"INSIDIOUS WEAKENING"
The PMI data are not a fail-safe guide to the outlook for
the economy. Immediately after the Brexit referendum in 2016,
they pointed to a sharper downturn than was actually the case.
But longer-term trends in the all-sector PMI generally match
up well with official quarterly growth numbers.
"September's decline is all the more ominous, being the
result of an insidious weakening of demand over the past year
rather than a sudden shock," Williamson said.
Firms which took part in Thursday's survey - which does not
cover retailers - reported that foreign customers were switching
business away from Britain due to fears of a no-deal Brexit.
New export orders fell at the sharpest rate since March,
when Britain was originally due to leave the EU.
Solid consumer demand has so far cushioned Britain's economy
from some of the impact of Brexit uncertainty, helped by the
lowest unemployment rate since 1975 and wages that are rising at
the fastest pace in a decade.
But the latest survey added to signs from consumer sentiment
surveys that jobs could be becoming less secure.
Services businesses shed staff at the fastest rate in nine
years in September. Taken as a whole, this week's PMIs pointed
to the sharpest fall in employment since December 2009.
Firms said they mostly reduced staff by not replacing
leavers, rather than through lay-offs.
- Detailed PMI data are only available under licence from
IHS Markit and customers need to apply for a licence.
To subscribe to the full data, click on the link below: https://www.ihsmarkit.com/about/contact-us.html
For further information, please phone IHS Markit on +800
6275 4800 or email economics@ihsmarkit.com
(Reporting by David Milliken; Editing by William Schomberg and
Catherine Evans)