UK's economic recovery stalls in October

(Sharecast News) - The UK's economic recovery stalled in October amid rising coronavirus cases and increased restrictions, with growth in the services sector slowing considerably, according to a survey released on Friday.
The IHS/Markit CIPS flash composite purchasing managers' index - which measures activity in manufacturing and services - fell to 52.9 from 56.5 in September, coming in below consensus expectations of 54.0. The composite PMI peaked at 59.1 in August.

A reading above 50.0 indicates expansion, while a reading below signals contraction.

The services PMI edged down to 52.3 in October from 56.1 the month before. Economists had been expecting a reading of 53.9. This was also below August's recent peak of 58.8 and pointed to the worst performance for the sector since June.

The manufacturing PMI declined to 53.3 from 54.1, versus expectations for a reading of 53.1.

Duncan Brock, group director at CIPS, said: "Fears over inherent weaknesses in the UK economy materialised this month with a sudden fall in the overall index showing a sharp drop in new orders and a continuing erosion of employment opportunities.

"Where some businesses were largely unaffected or were able to recoup losses quickly following the worst of the pandemic, consumer-facing businesses were the worst hit and some are now concerned about the prospect of total ruin. Either unable to fully open or tempt customers through the doors, hospitality firms saw their hands tied by further lockdown restrictions, safety measures for staff and customers, and the public more reluctant to leave their homes."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the drop in the flash composite PMI to near the 50-mark that theoretically denotes no change in GDP adds to evidence that the economic recovery has ground to a halt.

"The second wave of Covid-19 is the obvious driver of the slowdown, though the recovery likely would have decelerated anyway, given that the burst of pent-up demand for services after the lockdown was lifted in July never was likely to be sustained," he said.

"Note too that the PMI is a diffusion index which does not capture the magnitude of changes in demand at businesses. It will be too upbeat if, as seems to be happening now, most firms are growing modestly but a few in the consumer services sector are experiencing dramatic falls in demand."