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UK economic recovery went into reverse as second lockdowns hit firms

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Tom Belger
·Finance and policy reporter
·3-min read
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Bonmarche in Doncaster City Centre, advertising its closing down sale, on the day non-essential shops in England open their doors to customers for the first time after the second national lockdown ends and England has a strengthened tiered system of regional coronavirus restrictions.
A Bonmarche store with the company in administration as lockdown exacerbated UK high street woes. Photo: PA.

UK firms suffered an “inevitable downturn” as trade declined under the weight of tighter lockdown restrictions last month.

A leading business survey suggests most UK firms saw a fall in trade in November, marking the first time a majority have reported declining activity in five months. Reports of redundancies were widespread, as firms dealt with closures, shrinking customer demand and pressure to cut costs.

Services firms, which make up most of the economy from cafes and caterers to travel agents and tech startups, suffered most during renewed restrictions, according to new purchasing managers’ index (PMI) data on Thursday. England was in lockdown throughout November, with similar measures in Wales, Northern Ireland and parts of Scotland for some of the month.

“New lockdown measures and tighter pandemic restrictions unsurprisingly tipped UK private sector output back into decline during November,” said Tim Moore, economics director at IHS Markit, which compiles the survey.

READ MORE: EU stockpiles UK factory goods as firms brace for Brexit disruption

The headline PMI figure for services firms was 47.6 in November, on an index where readings above 50 show most firms expanding and below 50 show decline. Yet it marked a less severe decline than in October and than estimates had suggested, despite England's lockdown.

While closures hit hard, some firms “commented on successfully adapting to the new lockdown restrictions and seeing a reduced impact on client spending than initially expected,” added Moore.

WATCH: Pubs and restaurants reopen as nationwide lockdown lifts

The headline figure for overall private-sector output was 45.8, marking decline but still vastly better than the record-low 13.4 reading in April during the first nationwide lockdown.

Only 30% of services firms reported activity falling, compared to 80% in April — though with trade severely subdued already this year some may have had less far to fall.

The composite data also conceals a stark contrast between the fate of services and manufacturing companies.

Factories saw growth accelerate last month, boosted by ‘Brexit buying’ as EU firms stockpiled amid fears of disruption after the transition period ends on 31 December.

Production neared a three-year high in November. The headline figure for manufacturing came in at 55.6, up from 53.7 in October.

Many retailers, hospitality and leisure firms have reopened their doors this week across England after a month-long shutdown to curb a second wave of the pandemic. The latest survey showed optimism about the year ahead at a nine-month high, with vaccine breakthroughs lifting spirits.

But hospitality chiefs warn a tighter regional lockdown system will severely hamper trade, and the collapse of Arcadia, Debenhams and Bonmarché this week underline bricks-and-mortar retailers’ battle to survive.

Footfall data shows high street visitor numbers as shops reopened on Wednesday were still down by more than a third on levels seen a year ago.

READ MORE: Bonmarche becomes third UK retailer to collapse in three days

Similar composite data for leading eurozone economies also showed most firms suffering declining trade in November, with a composite reading of 45.3. It marked a modest improvement on the previous month’s data and on analysts’ expectations.

EU economies showed a similar disparity between factories and services, with manufacturing growth at 53.8 and services declining at 41.7.

WATCH: Why can't governments just print more money?