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UK facing 'double-dip' downturn as lockdown hammers bars and shops

Tom Belger
·Finance and policy reporter
·3-min read

Watch: UK economy shrinks as new lockdown shuts down firms

The UK’s economic recovery is facing a ‘double-dip’ downturn as coronavirus lockdowns batter firms, according to a leading business survey.

Industry data released on Monday points to the sharpest decline in private sector output since May as economic restrictions left firms reeling after four months of expansion.

Trade has taken the biggest hit for firms in services, which makes up four-fifths of the economy from cafes to shops to art galleries. Private sector employment slid at the fastest rate in three months as redundancies grew, despite greater use of the extended furlough scheme.

But the fall in overall trade was still less severe than expected by analysts, however, and vaccine hopes are lifting firms’ optimism about their futures. Manufacturing activity continued to expand, smashing analysts’ predictions of decline to hit a three-month high.

The purchasing managers’ index (PMI) data, one of the most closely watched indicators on the health of the UK economy, shows overall activity declining for the first time in months.

General view of a largely empty Burlington Arcade, in London, as most shops and businesses remain closed whilst England continues a four week national lockdown to curb the spread of coronavirus. (Photo by Kirsty O'Connor/PA Images via Getty Images)
A largely empty Burlington Arcade in London as England's lockdown continues. Photo: Kirsty O'Connor/PA Images via Getty Images.

READ MORE: Chancellor warned UK economy needs £164bn boost

Survey responses from firms are turned into a headline figure on the performance of manufacturing, services and the two combined.

November’s headline composite figure came in at 47.4, down from 52.9 in October. Numbers below 50 show most firms are reporting declining trade, while numbers above 50 show expansion on the index.

Analysts had expected a steep decline in activity as many firms were forced to close, with Wales facing a “firebreak” lockdown until 9 November, England in lockdown from 5 November and some Scottish areas facing tougher curbs from 20 November.

READ MORE: One in seven firms fear for their survival in next few months

"A double-dip is indicated by the November survey data, with lockdown measures once again causing business activity to collapse across large swathes of the economy,” said Chris Williamson, chief business economist at IHS Markit, which compiles the data.

Separate data from Springboard shows footfall in retail areas was down to just 44% of levels seen a year earlier in the week to 15 November, compared to up to 70% of pre-virus levels in October. Hospitality and ‘non-essential’ retail firms have warned many firms and jobs are at risk from shutdowns, and one in seven UK business owners report little confidence in their survival.

But experts at Oxford Economics said in advance of the figures’ release that the lockdown in England was likely to prove “much less damaging” than the first UK lockdown, with many firms improving their online operations.

Manufacturers in the PMI survey reported rising demand in China and Europe including stockpiling ahead of the Brexit transition period ending. The gap between factories, which posted a reading of 55.2, and services, at 45.8, was the widest this month in the 25-year history of the survey.

Williamson noted: “While the lockdown will be temporary, so too will this pre-Brexit boost.”

Meanwhile new PMI figures for the eurozone also showed a six-month high in the proportion of services and manufacturing firms reporting declining trade, with activity declining in November after turning flat last month.

“The eurozone economy has plunged back into a severe decline in November amid renewed efforts to quash the rising tide of COVID-19 infections,” said Williamson.

Watch: What is a V-shaped economic recovery?