Coronavirus smashes UK economy with unprecedented force

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Coronavirus smashes UK economy with unprecedented force

Coronavirus smashes UK economy, faster than during the 2008-09 financial crisis, as businesses across the services sector shut up shop in face of the coronavirus.

Conducted last week before the government ordered the closure of all pubs, restaurants and other businesses open to the public late on Friday, the monthly Purchasing Managers’ Index points to the economy shrinking at a quarterly rate of 1.5-2.0%.

“This decline will likely be the tip of the iceberg and dwarfed by what we will see in the second quarter,” said Chris Williamson, chief business economist at IHS Markit, which runs the survey.

UK economy

At the worst point of the 2008-09 recession, Britain’s economy shrank 2.1% in a single quarter.

The flash composite PMI – which includes about 85% of firms in the full survey – sank to 37.1 from 53.0, its lowest since the survey started in January 1998 and below all forecasts in a Reuters poll of economists. The services component sank to 35.7 from 53.2, also a record low.

“Any growth was confined to small pockets of the economy such as food manufacturing, pharmaceuticals and healthcare. Demand elsewhere has collapsed … as increasing numbers of households and businesses at home and abroad close their doors.”

The manufacturing activity PMI fell by less, to 48.0 from 51.7. IHS Markit said this reflected an upward distortion, due to the positive impact on the index of lengthening delays from suppliers – usually a sign of a sharp rise in demand, but in this case caused by the coronavirus.

Looking at the manufacturing PMI’s output component alone, production was falling at its fastest since July 2012, during the euro zone debt crisis.

British finance minister Rishi Sunak last week promised businesses 330 billion pounds in loan guarantees and offered to pay 80% of their wage bills if they put staff on leave rather than sack them.

The PMI data showed employment was already falling at the fastest rate since July 2009.

The Bank of England, in turn, has said it will buy a record 200 billion pounds of extra assets, mostly government debt, and cut its main interest rate to a record-low 0.1%.

Former Bank of England Governor Mervyn King said the economic challenge facing Britain was tougher than during the 2008-09 financial crisis and that public borrowing was likely to rise significantly.

 

Source:Reuters