With services sector growth slowing considerably amid rising COVID-19 cases and new government measures, the UK economy’s recovery slowed in October, according to a new survey. The IHS Markit/Cips preliminary purchasing managers’ index (PMI), a gauge of the private sector’s health, fell sharply to 52.9 in October from September’s reading of 56.5.
A score above 50 indicates expansion. But the sharp slowdown in growth will worry policymakers given that more restrictions have been put in place since the survey of companies’ purchasing managers was taken.
The UK has been battling a steep rise in coronavirus cases. In response to the surge, the government has put parts of the country under strict “Tier 3” restrictions which limit mixing and force some hospitality businesses to shut.
In October, manufacturing production grew strongly. Survey respondents pointed to pent up demand, a frothy housing market and the restart of delayed work projects. But growth in the services sector was held back by renewed COVID restrictions, IHS Markit said.
It also said the hospitality and tourism sector remained weak.
The survey indicated a “steep fall” in employment. There were deep job cuts in both manufacturing and services, as firms cut costs to adapt to the new climate.
“Not surprisingly the weakening is most pronounced in the hospitality and transport sectors, as firms reported falling demand due to renewed lockdown measures,” said Chris Williamson, chief business economist at IHS Markit.
Williamson said the slowdown would have been “even more pronounced” if companies had not benefited from higher exports. “It’s not looking good,” said Paul Dales, chief UK economist at Capital Economics. He cautioned against “reading too much into” the rise in September retail figures.
“The renewed downward trend in the PMIs provides a better sense of what’s happening to the overall economy.”
Small firms located in London’s financial district, have spent the summer in lockdown trying to survive and adapt to the government’s coronavirus regulations.
Restaurants, bars, hairdressers, dry cleaners, shoe repairs and cafes have battled to survive the initial forced closure during lockdown, followed by a sharp decline in the district’s footfall as most office workers remained at home. While the streets in the area are far from full, some workers had tentatively begun returning to the office and signs of life had started to return. But with London now in a Tier 2 lockdown – which prohibits different households from mixings – and workers resuming their remote-working routines, many small firms located in the financial district are now worrying how they will survive this second wave of restrictions – and the threat of an even harsher clamp down.
Matt Grece Smith, co-chief executive of Competitive Socialising, says he is “frustrated” that the government is targeting hospitality after firms have spent the summer implementing COVID-19 safety measures.
His firm, which relies on groups of friends and corporate events for its main income, has already faced a “barrage” of cancellations since the government announced London’s move into Tier 2 restrictions.
The firm occupies a prominent site in the area as well as one in the normally bustling West End, has already made 75 people redundant from the previous lockdown.
When asked whether more job cuts were inevitable following the clampdown on socialising, Smith admits: “We don’t know yet, we have to wait and see. We’re already fielding a barrage of people wanting to cancel their bookings, because they were groups of different households.
It is really frustrating.” He added: “We were kind of getting to a place where it was sustainable, and once again we have had the rug pulled out from under our feet”. (The writer is our foreign correspondent based in the UK)
Andy Jalil
andyjalil@aol.com
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