A double-dip recession is “on the cards” after the UK’s private sector saw activity plunge this month due to the latest set of lockdown restrictions, according to new data.
The closely watched IHS Markit/CIPS Flash UK Composite PMI report showed a reading of 40.6 so far in January. Anything below 50 is seen as a decline in activity.
It is significantly below the expectations of analysts, who predicted a reading of 46.1 for the month.
“A steep slump in business activity in January puts the locked down UK economy on course to contract sharply in the first quarter of 2021, meaning a double-dip recession is on the cards,” said Chris Williamson, chief business economist at IHS Markit.
🇬🇧 The UK Flash Composite #PMI tumbled to 40.6 in January (Dec – 50.4) to signal the worst downturn in private sector activity since May, as lockdown measures severely limited service sector output. Read more: https://t.co/cU2Byktcvg pic.twitter.com/yA1XE3pttO
— IHS Markit PMI™ (@IHSMarkitPMI) January 22, 2021
The slump came after it revealed a minor rebound in December, which had a 50.4 point reading for the month.
The January report revealed a sharp slump in the services sector after hospitality firms and non-essential retailers were forced to shut their doors to customers.
Meanwhile, the recovery in the manufacturing sector slowed down to only marginal growth amid weaker export orders.
Mr Williamson said: “Services have once again been especially hard hit, but manufacturing has seen growth almost stall, blamed on a cocktail of Covid-19 and Brexit, which has led to increasingly widespread supply delays, rising costs and falling exports.
“Worryingly, January also saw companies reduce headcounts at an increased rate again – albeit less so than seen between March and November.”
Despite the fall in activity, survey respondents “remain upbeat about their prospects on a longer-term basis”, it said.
Duncan Brock, group director at CIPS, said: “Though worrying, this was not an unexpected downturn from businesses ravaged by restrictions, lockdowns and post-Brexit disruption.
“But with the highest level of business optimism since May 2014, firms are keeping their plates spinning and responding as well as can be expected to the changing environment, placing hope in vaccine programmes bringing more normality soon.”