UK downturn moderates in December but recession begins – PMI

UK downturn moderates in December but recession begins – PMI

The economic downturn that affected the majority of British firms eased a bit this month, but the manufacturing sector struggled and the economy is likely to shrink this quarter, indicating recession, a poll found on Friday.

The UK S&P Global Composite PMI, or Purchasing Managers’ Index (PMI) increased to 49.0 after 48.2 at the end of November but it was still lower than the 50-point threshold for growth. A Reuters survey of economists predicted a slight decline to 48.0.

The dominant service sector was the driver behind all the improvements while the decline accelerated within British manufacturing firms, who eliminated employment for the very first time since October of 2020.

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The survey was akin to other indicators that indicate the economy is shrinking at a moderate pace, and does not get any worse and that price pressures are easing further from their historically high levels.

Separate data from Friday revealed the unexpected decline in retail sales for November, and consumer confidence was at a record low in November.

“The release still indicates a sign of the UK having a weak but prolonged recession towards the end of 2022 and through 2023.” stated Daniel Mahoney, UK economist at Handelsbanken.

Composite PMIs from different European countries showed similar results, though the readings of Britain were higher than those of France as well as Germany at first since the beginning of July.

UK downturn moderates in December but recession begins - PMI

The announcement came just a few days after Bank of England officials raised rates of interest and suggested that there is a possibility of more increases in the face of a possible recession in the context of how central banks seek to reduce inflation, which has reached a 41-year peak in October.

Investors believed the message of the BoE to mean that it may be coming to the close of its rate increase.

S&P Global said the PMI was consistent with a 0.3 percent decline in output of the economy in the 4th quarter. On Thursday the BoE stated that it was expecting to see a less than 0.1 percent drop in the fourth quarter.

The economy slowed by 0.2 percent during the months of July-September as per official statistics.

Composite PMI’s measures for inflation in both the business’s prices for their inputs and their selling prices have slowed to their lowest levels since mid-2021.

The PMI for the sector of services increased to 50.0 in December, which is a sign of stagnation down from 48.8 during November.

Factories, which comprise less than 10 percent of Britain’s GDP however, did worse. The manufacturing PMI fell down to 44.7 from 46.5 which was the lowest point since May 2020, which was the midst of the initial COVID-19 lockdown.

“It’s not a surprise that companies are hurriedly preparing the hatches, notably by cutting headcounts, an indication that the economic downturn will not be over in the long run, but may also be accelerating even more, especially with December’s new hike in interest rates.” S&P Global Chief Business Economist Chris Williamson said.


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