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IHS Markit: UK on course for recession

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While the political crisis in Britain intensifies, economic data continues to deteriorate and a recession now appears firmly on the cards. That said, the week had its share of bright spots globally, with the US and China announcing intentions to resume talks and better-than-expected Chinese manufacturing data.

Manufacturing news in the UK and US was less positive. This followed the IHS Markit UK Manufacturing PMI survey pro-ducing a reading of 47.4 in August, down from 48 in July, stuck firmly in recessionary territory (any reading below 50 means activity is contracting). Indeed, the survey revealed the worst readings in seven years, as confidence, new orders and output all fell sharply. In a worrying development, prices companies charged increased, as around 80% of firms said the weaker exchange rate was forcing them to pass higher costs on to customers.

The same survey of the UK construction sector showed new orders dropping at their fastest rate in more than a decade, leading to a reading of just 45 in August, from 45.3 in July. Of most concern was the decline in Britain’s services sector, which accounts for around 80% of GDP. The reading from the IHS Markit Services PMI survey fell to 50.6 in August from 51.4 in July, effectively flatlining. Confidence among service-sector respondents dropped to the lowest level since July 2016. The survey suggested that some European clients had put off new projects with UK companies because of Brexit uncertainty. UK firms also reported that jobs growth ground to a halt as fears mount over the economic outlook.

The all-sector output index, a composite of all three indices, dropped from 50.3 in July to 49.7 in August. According to IHS Markit, this means that the UK economy is on track to contract by 0.1% in the three months to September. If that happens, it will mark the second consecutive quarter of contraction, which meets the technical definition of a recession.

Meanwhile, retail sales were flat in August, according to data from the British Retail Consortium (BRC), despite hot weather boosting sales of food and drink. Like-for-like retail sales dropped by an annual rate of 0.5% during August - sales of non-food items fell by 1.2% in the three months ended 31 August and even online non-food sales slowed, with growth falling to 2.2% from 7.5% 12 months earlier.

Meanwhile, the US manufacturing sector unexpectedly contracted in August amid their ongoing trade tensions with Chi-na. The Institute of Supply Management’s (ISM) headline manufacturing index fell to 49.1 in August from 51.2 in July, below expectations for a reading of 51.0. New orders were down to 47.2 in August from 50.8 in July, while the production index fell to 49.5 from 50.8.

 


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