UK Private Sector Contracts Most On Record Amid COVID-19 Pandemic

The UK private sector contracted at the fastest pace in more than two decades due to the widespread shutdowns in response to the coronavirus, or COVID-19, pandemic, flash survey results from the IHS Markit showed Thursday.

The IHS Markit/Chartered Institute of Procurement & Supply composite output index fell to a record low 12.9 in April from 36.0 in March. This was well below economists’ forecast of 31.0.

The latest survey also signaled survey-record declines in new orders, backlogs of work and employment in April. Meanwhile, business sentiment showed a moderate rebound from the record low seen in March.

Average prices charged decreased at the steepest pace since this index began in November 1999. At the same time, average cost burdens dropped for the first time in just over five years.

At 32.9, the flash manufacturing Purchasing Managers’ Index reached its lowest score since the survey began in January 1992, from 47.8 in March. The expected score was 42.0.

At the same time, the services PMI plummeted to 12.3 in April from 34.5 in March, to signal by far the sharpest reduction in service sector activity since the survey began in July 1996. The reading was forecast to drop to 29.0.

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 percent, Chris Williamson, chief business economist at IHS Markit, said.

However, the actual fall 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, Williamson noted.

The more important concern now is the recovery, and despite bold economic measures from the government and Bank of England, the recovery is set to be a slow process, James Smith, an ING economist said.

Data from the Office for National Statistics showed that the UK budget deficit exceeded the government estimate in the financial year ended March 2020.

Public sector net borrowing increased GBP 9.3 billion from the last year to GBP 48.7 in the financial year ended March. This was above the GBP 47.4 billion borrowing projected by the Office for Budget Responsibility.

Public sector net borrowing excluding public sector banks rose GBP 3.9 billion to GBP 3.1 billion in March. This was the highest borrowing in any March since 2016.

The ONS cautioned that the coronavirus, or COVID-19 pandemic is expected to have a significant impact on the UK public sector finances. Accordingly, some of the statistics included in this release will undergo larger revisions than normal.

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