The closely-watched survey from IHS Markit/CIPS revealed the UK’s dominant services sector contracted at a record pace in April. Nearly 80 percent of services, such as cafes and hairdressers, have all reported a fall in business activity as they continue to be shut following the enforcement of nationwide lockdown measures six weeks ago. IHS Markit has forecast UK GDP could plummet by a quarterly rate of seven percent, but warned the decline could actually be even bigger.
The Purchasing Managers Index (PMI) index for the services sector revealed the reading had plunged to a record-low of 13.4 in April – a significant fall from the 34.5 in March.
The latest reading will send shockwaves throughout the UK economy, as a figure below 50 indicates contraction.
Worse still, the UK’s services PMI does not even include retailers, who have been hardest hit by store closures since the March 23 lockdown, or many of the self-employed.
Despite the gloomy outlook, this reading was still a slight improvement of the preliminary estimate of 12.3 that had been forecast towards the end of last month.
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Prior to the last two months, the survey-record low stood at 40.1 in November 2008.
The reading for April shows just how much of a hole the coronavirus lockdown has already blown in the UK economy, as well as the crucial services sector.
Tim Moore, economics director at IHS Markit, said the latest financial 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”.
He added: “The April survey reading is consistent with the economy falling at a quarterly rate of approximately seven percent.
“But 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.”
The services PMI did however reveal a small increase in business expectations to 53.2 in April from an already record-low of 47.9 in March, reflecting hopes from businesses they will soon be able to reopen.
But Mr Moore warned: “However, service providers looking to re-establish business operations overwhelmingly commented that capacity would remain well below previous levels for an extended period and any timings remain highly uncertain
Analysts are also warning there will be no immediate quick fix, and to not expect a significant recovery during the summer.
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Samuel Tombs, economist at Pantheon Macroeconomics, said: “With several sectors of the economy set to remain closed for business throughout the summer, and consumers’ confidence torn to pieces by Covid-19, we expect only about half of the second quarter’s huge drop in GDP to be reversed in the third quarter.”
The UK has been in lockdown since March 23, with Chancellor Rishi Sunak and other Government minister making several huge spending pledges worth hundreds of billions of pounds in a desperate effort to prop up the economy and businesses.
But the lockdown has forced companies to shut with thousands more going under completely, already resulting in the loss of several million jobs.
Last month, Government budget forecasters warned the UK economy could contract by as much as 35 percent in a worse case scenario during the current April to June period as a result of the lockdown.
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