The pound fell on Friday as a business survey pointed to the steepest downturn in decades for Britain’s economy, with the coronavirus wreaking havoc for firms.
The services sector, from banking to retail and hospitality to the creative industries, has seen the sharpest drop in activity since the UK purchasing managers’ index (PMI) survey began in 1996.
Employment levels have dropped at the fastest pace since the financial crisis in 2009, while business activity has fallen to levels below even during that crash, according to the survey.
Warnings are growing that Britain faces one of the worst recessions in modern history, with virus fears hammering demand and an unprecedented lockdown hobbling virtually all business activity.
Sterling slid 1.1% against the dollar (GBPUSD=X) to below $1.23 at around midday on Friday. It also lost 0.5% against the euro, despite similarly bleak new PMI data showing record declines in business activity across the eurozone.
Data provider IHS Markit and the Chartered Institute of Procurement & Supply (CIPS) released their closely watched data on services. Their headline index figure dropped from 53.2 in February to 34.5 in March.
The index is measured on a scale of 0 to 100, with anything above 50 signalling growth and anything below signalling contraction.
Their manufacturing survey on Wednesday also showed output and new orders declining at the fastest rate in eight years due to the coronavirus pandemic.
A composite index of manufacturing and services also recorded its biggest drop in activity since records began in 1998. The slump in new orders for private firms was the fastest ever recorded.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “The services sector was sucked into a black hole and flung into the unknown by the forceful impact of the COVID-19 coronavirus.
“The likelihood of a global recession is now a given, though its duration and severity has yet to reveal itself. One thing is for certain, with the lowest business optimism for over 20 years, the immediate outlook for the services sector is beyond grim."
Service providers responding to the IHS Markit survey said employment was falling as they tried to cut costs, through both forced redundancies and hiring freezes.
“A number of companies reported placing staff on furlough, which appears to have softened the overall scale of job cuts recorded in the latest survey period,” said the latest IHS Markit report.
The UK government has announced billions of pounds of support for businesses hit by the coronavirus pandemic, in the form of state-backed loans, tax relief, subsidies for ‘furloughed’ employee wages, and grants. Rules around insolvency have also been relaxed.
However, almost a million people have already applied for unemployment benefits in the past two weeks alone despite the support package.
Bank of America on Thursday sharply downgraded its forecast for the UK economy this year, cutting its estimate of GDP growth from -2% to -7.4% in 2020.
The Federation of Small Businesses and the Corporate Finance Network this week has warned that millions of firms could collapse in weeks without a cash infusion.
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