LONDON – UK business activity has crashed at its fastest pace on record, according to closely-watched figures on the toll coronavirus is taking on the economy. The IHS Markit/CIPS Flash UK composite purchasing managers’ index (PMI) plunged to a reading of 12.9 for April, from a reading of 36 last month as lockdown started to take its toll on output, Sky News reported. Anything below 50 signals a contraction.
The performance was dragged down by widespread shutdowns in manufacturing and the powerhouse service sector, the report said. Sky’s economic editor, Ed Conway, responded by saying the activity readings were unprecedented and “leagues worse” than the disruption caused to output following the crash following the financial crisis of 2008.
The report is based on responses to a survey of purchasing managers of private companies.
It said, “Around 81% of UK service providers and 75% of manufacturing companies reported a fall in business activity during April, which was overwhelming attributed to the COVID-19 pandemic.”
“The small minority of manufacturers reporting output growth were mostly involved in medical supply chains or producers of food & drink,” it added.
“In the service economy, there were sporadic reports of growth in April among those with major clients in either online retail or the public sector,” the report said, adding, “Mirroring the trend for private-sector output, the latest survey also signaled survey-record declines in new orders, backlogs of work and employment.”
The vast majority of businesses were forced to either shut down or impose strict social distancing measures, including working from home, from March 23 as the UK lockdown got underway to limit the spread of coronavirus and protect the NHS.
The Treasury revealed on Thursday that it was seeking to borrow £180bln over the next three months alone to help meet its financing requirements amid the resulting economic collapse and cost of support packages for workers and businesses.
A scenario published by the Office for Budget Responsibility earlier this month suggested the collapse in output could result in a 35% collapse in GDP in the second quarter – the three months to the end of June.
Chris Williamson, chief business economist at IHS Markit, said the PMI figures confirmed “fears that GDP will slump to a degree previously thought unimaginable in the second quarter”.
He added, “Simple historical comparisons of the PMI with GDP indicate that the April survey reading is consistent with GDP falling at a quarterly rate of approximately 7%.”
“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, which have been especially hard-hit by the COVID-19 containment measures,” he noted.
Separate PMI readings showed a similar picture for France and Germany, with the 19-country eurozone as a whole seeing an economic contraction that would outpace the UK’s fall.