The UK’s economy is on course for a downturn deeper than anything seen in living memory, experts warned on Tuesday, as the service sector plummeted to a new record low.
The closely watched IHS Markit/CIPS purchasing managers’ index (PMI) for services dropped to 13.4 in April, by far the worst score since the survey started in 1996.
“April’s PMI data highlights that the downturn in the UK economy during the second quarter of 2020 will be far deeper and more widespread than anything seen in living memory,” said Tim Moore, economics director at IHS Markit, which compiles the survey.
Even a doomsday prediction may be optimistic
He said the score is consistent with a quarterly 7 per cent drop in the economy, but even such a doomsday prediction may be optimistic.
“We expect the actual decline in GDP could be even greater, in part because the PMI excludes the vast majority of the self-employed and the retail sector,” Mr Moore added.
The economy had already been smarting in March, when the survey returned a then record low of 34.5. Anything below 50 is considered a contraction in the sector.
The previous record low was 40.1 in November 2008.
Some firms say their business has totally stopped
In April, the survey found that only one in five services companies managed to avoid a drop in activity when compared with March. Some firms, hit by total closures, said their business had totally stopped.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “Though a further downturn was anticipated after last month’s historically low figures, the scale of this fall is unnerving.
“A significant number of businesses in shutdown now may never reopen. Even with some movement in the lifting of restrictions on business activity, the UK economy is not a tap that can just be turned on.”
Some shoots of good news
Amid the carnage, there were some shoots of good news.
One in seven companies said their activity had been unchanged since March, largely thanks to continuity plans such as working from home.
There were also signs of hope that the economy could start opening up again.
“Survey respondents indicated a tentative upturn in their business expectations amid hopes that a gradual reopening of the economy can be achieved in the summer,” Mr Moore said.
Ayush Ansal, chief investment officer at hedge fund Crimson Black Capital, said: “November 2008 was a minor economic blip compared to April’s abyss.
“That business expectations have picked up slightly is more a reflection of our recalibration to chaos than hopes of an imminent rebound.
“The services sector has been shattered and the road to recovery will take many, many years.”