The UK economy has suffered a sharper slowdown than in 2008 as the coronavirus “flung businesses into the abyss,” with experts warning it could trigger the worst recession in modern history.
A closely watched survey shows UK business activity has nosedived at a faster rate even than at the height of the financial crisis more than a decade ago. The slowdown between February and March marks the sharpest monthly decline on the flash composite UK purchasing managers’ index (PMI) since it began in 1998.
Both manufacturing and the UK’s dominant services sector, including everything from banking to retailers, have suffered sudden and steep declines in work. Firms say demand for goods and services has collapsed as growing numbers of firms and households shut their doors.
Hotels, restaurants, sports centres and hair salons have been particularly hard hit. Global supply chain disruption because of the pandemic has also left manufacturers facing the steepest monthly drop in delivery times since records began in 1992.
The survey by IHS Markit and the Chartered Institute of Procurement & Supply (CIPS) also suggests the worst is yet to come. It came before the UK government ordered restaurants, pubs and other venues to close on Friday and all non-essential shops to close on Monday.
Chris Williamson, chief business economist at IHS Markit, said: “The surveys highlight how the Covid-19 outbreak has already dealt the UK economy an initial blow even greater than that seen at the height of the global financial crisis.
“With additional measures to contain the spread of the virus set to further paralyse large parts of the economy in coming months, such as business closures and potential lockdowns, a recession of a scale we have not seen in modern history is looking increasingly likely.”
Williamson said the rapid slowdown seen so far may prove to be just the “tip of the iceberg,” with the government’s measures to contain the virus taking a heavy toll on firms.
Food manufacturing, pharmaceutical firms and the healthcare sector are some of the only areas of the economy where firms report growth amid the pandemic and consumer stockpiling.
The headline figure on the purchasing manager’s index was 37 in March, plunging from 51 in February. Figures above 50 show firms reporting growth, while figures below 50 mark decline. The previous low of 38.1 was in November 2008.
Duncan Brock, Group Director at CIPS, said: “Just as the economy began to strengthen at the beginning of the year, the shock of this deepening global health crisis has flung businesses into the abyss, with the worst overall downturn in manufacturing and services for more than two decades.”
Leading global banks have already issued stark downgrades of Britain’s growth forecasts. Bank of America expects the UK economy to shrink by 2% over the year, Deutsche Bank forecasts a 4.2% decline and Morgan Stanley a 5.1% decline.
Deutsche Bank analysts warned that in a worst-case scenario, the economy could suffer its worst hit in a century, sinking 5.5%.