Britain’s economy suffered the biggest slump on record this month as the government’s lockdown to tackle the coronavirus pandemic forced businesses to close and workers to stay at home.
The eurozone economy also suffered the steepest fall in business activity and employment ever recorded, ahead of what is expected to be the deepest global recession in peacetime.
Data firm IHS Markit said its UK composite purchasing managers index (PMI), which tracks activity across the services and manufacturing sectors, slumped to just 12.9 for April, down from 36 in March. This was way below economists’ forecasts and well short of the 38.1 reading recorded in the depths of the 2008 financial crisis. A PMI figure above 50 indicates business activity expanded.
Amid warnings that tackling the coronavirus pandemic could wreck developed and developing world economies for several years, Markit said the dive in activity in the UK and the eurozone was the worst since it started surveying businesses more than two decades ago.
Both manufacturing and services companies reported a collapse in business, with the manufacturing PMI falling from 43.9 in March to 16.6 in April and the services PMI tumbling from 34.5 in March to 12.3 in April. The services sector accounts for about three-quarters of the UK’s business activity.
IHS Markit said four-fifths of the UK service companies it surveyed reported a drop in activity this month, as did 75% of manufacturers.
This was “overwhelmingly attributed to the Covid-19 pandemic”, the data provider said.
Many firms also reported record declines in new orders, backlogs of work and employment. Half of those surveyed said they had cut their workforce this month, with many saying they put staff on furlough.
The eurozone-wide composite PMI hit an all-time low of 13.5 in April, down from a prior record low of 29.7 in March, reflecting the wholesale shutdown of Europe’s economy this month.
Chris Williamson, chief business economist at IHS Markit, said that based on the responses from business, the UK economy was likely to contract by 7% this year while the eurozone economy could fall by 7.5%.
He said: “The level of business closures and social distancing measures have caused business activity to collapse at a rate vastly exceeding that seen even during the global financial crisis, confirming fears that GDP will slump to a degree previously thought unimaginable in the second quarter due to measures taken to contain the spread of the virus.”
For the UK, he said the situation could be even worse as those elements of business activity excluded from the survey fall at a faster rate.
“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 said there was “one ray of light”, which came from an improvement in business optimism about the year ahead compared with the all-time low recorded in March, as more companies saw light at the end of the tunnel.
“Sentiment about the coming year nevertheless remained the second-lowest ever recorded to underscore how few businesses are anticipating a swift recovery,” he said.