The United Kingdom’s economy is set to face its first recession since the financial crisis of 2007 and 2008, with there being a slowdown in growth in the services sector, which accounts for more than 80% of the UK’s GDP.
During August, the closely-monitored IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) fell to 50.6, which is a significant drop from July’s 51.4.
Whilst anything that is over 50 indicates some sort of growth and is deemed to be positive, this is very concerning since the index is very close to the borderline, and the 0.8 drop is significant when it comes to an economy that depends so much on services.
Apart from this, according to this survey, business optimism is at its lowest in more than three years, increasing the negative outlook on Britain’s economy.
With the services sector being the largest part of the UK’s economy, making up around 80% of the total GDP, this will come as a huge concern.
Last month, results came out that showed that the UK’s GDP had contracted by 0.2% during the second quarter, meaning that if it shrinks by any amount during the third quarter, then the UK would officially be suffering from a recession.
This seems to be increasingly likely, with IHS Markit forecasting a contraction of 0.1% during the third quarter.
Chris Williamson, IHS Markit’s chief business economist stated that “After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the services sector raises the likelihood that the UK economy is slipping into recession.”
He also added that “the summer’s malaise could intensify as we move into autumn,” which could only lead to “the darkening outlook”.
There were other economists that provided a more optimistic and positive outlook, one of which being Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Mr Tombs said that inventories will boost GDP growth in the third quarter, whilst also adding that the research made excludes “the retail and government sectors, which still are growing.”
On Monday, the manufacturing sector experienced its weakest level of growth for more than seven years. On Tuesday, the bad news continued, with the construction sector suffering its biggest drop in new orders since the pinnacle of the financial crisis.