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UK lockdown sends economy spiralling at sharpest rate since last May

Tom Belger
·Finance and policy reporter
·3-min read
Shipping containers are stacked on a cargo ship in the dock at the ABP port in Southampton, Britain August 16, 2017. Picture taken August 16, 2017.  REUTERS/Peter Nicholls
UK manufacturing production rose in January. Photo: REUTERS/Peter Nicholls.

The UK private sector has suffered its worst fall in output since last May over the past few weeks, as the latest nationwide lockdown hobbled the economy.

A poll of UK firms showed trade for services firms plummeting in January at its fastest rate since the first UK lockdown last year, contracting far more severely than expected by analysts. Services makes up the bulk of the economy, from banks to hotels to retailers.

Manufacturers managed to continue to expand, but at their weakest pace in seven months as Brexit and COVID-19 caused widespread delays to supplies, rising costs and falling exports.

READ MORE: Irish government scoffs at UK claim Brexit not causing empty shelves

Analysts said it meant the UK economy was on course to contract sharply in the first quarter, meaning a double-dip recession was “on the cards.”

“This is a sudden blow to the UK economy as recovery in the two sectors lost its momentum after some improvement at the end of last year,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), which compiles the survey.

The preliminary purchasing managers’ index (PMI) data is the first since Britain and the EU struck a trade deal in late December, and is a closely watched barometer on the health of the UK economy.

WATCH: Nissan commits to Britain after Brexit deal

Survey responses are turned into headline figures on trade levels. The preliminary reading for services was 38.8 in January, on an index where figures above 50 show most firms expanding and below 50 show decline.

It marks an eight-month low, and a steep decline on both December's near-flat 49.4 and analysts' predictions of a more modest drop to 45.

The reading for manufacturing showed a small majority of firms expanding at 52.9, but it also marked a decline on both December's 57.5 reading and analysts' forecasts of 54.

Firms across the economy reported a "rapid drop" in consumer spending due to lockdown curbs. The pace of job cuts also accelerated, with the steepest declines in hotels, restaurants, travel and leisure.

But companies said they had been able to adapt better to restrictions than in the first lockdown in early 2020. The vaccine rollout has also lifted optimism over the year ahead to its highest level in more than six years.

It came as:

  • Similar data for eurozone manufacturers also showed expansion but at a weaker pace than the previous month as lockdown restrictions have been expanded, with a reading of 54.7.

  • Nissan (7201.T) pledged to keep its factory open long-term in Sunderland in north-east England, safeguarding thousands of jobs. It also confirmed COVID-19 port disruption had temporarily halted production.

  • Official data showed UK firms saw only a small, weaker-than-expected rise in sales in the crucial pre-Christmas trading period.

  • Consumer confidence deteriorated further as households worries grew over their own finances and the state of the economy, according to GfK’s monthly survey.

  • Comments by ministers dashed hopes Britain could bring down coronavirus infection rates and roll out vaccines fast enough to ease restrictions from March.

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