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UK Private Sector Shrinks Amid Recession Fears, Weakest PMI Since 2021

  1. UK Private Sector Contracts Sharply
  2. Recession Fears Heighten
  3. Weakest PMI Since 2021

The United Kingdom is facing economic challenges as its private sector experiences its most rapid contraction since the COVID-19 lockdowns, raising concerns about the possibility of a recession.

In September, the monthly Purchasing Managers’ Index (PMI) recorded its weakest reading since January 2021. Excluding the pandemic period, this is the worst performance since March 2009, indicating a potential contraction of over 0.4% in the third quarter.

Bank of England officials reviewed these figures before deciding to maintain the current interest rates, citing concerns over an impending economic slowdown.

Across the eurozone, PMI figures also paint a bleak picture, with Germany facing a sustained decline in demand, earning it the moniker “the sick man of Europe.”

Uk private sector shrinks amid recession fears, weakest pmi since 2021
Uk private sector shrinks amid recession fears, weakest pmi since 2021

While separate data suggests a partial recovery for the UK, including rising consumer confidence and a 0.4% increase in retail sales in August, these positive signs may be short-lived. Rising unemployment and the impact of higher interest rates are likely to impede further recovery, according to Investec economist Sandra Horsfield.

Horsfield commented, “We believe the economy is entering a more challenging phase, and there’s a likelihood of a relatively mild but short-lived recession this winter.”

The UK’s “flash” PMI for September recorded a reading of 46.8, down from August’s 48.6. The report attributes weaker demand to the pressure of rising living costs and increased borrowing expenses. Cutbacks in spending by clients in the real estate and construction sectors, along with customer destocking, have also affected output.

Chief Business Economist at S&P Global Market Intelligence, Chris Williamson, expressed concern, stating, “The disappointing PMI survey results for September make a recession in the UK increasingly likely. The sharp drop in output implied by the flash PMI data suggests that GDP may contract by more than 0.4% on a quarterly basis, with a broad-based economic downturn gaining momentum and offering little hope of immediate improvement.”

While the Bank of England’s outlook is somewhat less pessimistic, it has still revised its third-quarter GDP growth forecast from 0.4% to 0.1%.

In summary, the UK’s private sector is experiencing a rapid downturn, as indicated by the latest PMI figures, raising concerns about the possibility of a recession and prompting Bank of England action to address economic challenges.

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