New S&P Data Indicates Ongoing Decline in UK Business Activity

29 Oct, 2023

New S&P Data Indicates Ongoing Decline in UK Business Activity

The S&P Global/Cips Flash UK composite purchasing managers' index remained below the 50-point threshold, with a marginal increase from 48.6 in September to 48.7 in October. Any reading below 50 signifies a contraction in business activity, a trend observed in August and September as well.

Chris Williamson, the Chief Business Economist at S&P Global Market Intelligence, attributed the decline to reduced exports, elevated interest rates, and the ongoing cost-of-living crisis. Both the services and manufacturing sectors experienced declines over the past three months, leading some economists, such as Ruth Gregory of Capital Economics, to suggest that the data indicates the onset of a mild recession. However, they also noted that the Bank of England has likely concluded its interest rate hikes.

In the realm of manufacturing, statistics have remained in negative territory for eight consecutive months, marking the longest such period since the 2008 financial crisis. Some, like Sandra Horsfield of Investec, cautioned against placing excessive emphasis on these findings, citing revisions in early estimates for September's figures.

These statistics coincide with a report from the House of Commons, which revealed a 0.8% decrease in manufacturing output between July and August, with a notable 3.2% drop in computer, electronic, and optical product manufacturing. There is a glimmer of optimism in the House of Commons data, indicating that manufacturing output in the three months leading up to August was 1.7% higher compared to the three months leading up to May.

The UK's unemployment data has come under scrutiny, with concerns raised about its accuracy. The Office for National Statistics (ONS) reported a 4.2% unemployment rate, a 0.2% increase from the previous quarter. The ONS labeled these statistics "experimental" because they were derived from benefit and tax claim information due to declining survey responses post-pandemic. The ONS is working on an improved Labour Force Survey to enhance data accuracy. Some experts, like Chris Giles, a commentator for the FT, have expressed doubts about the official figures and their influence on Bank of England interest rate decisions.

In the United States, similar economic figures reflect a turbulent business environment. Corporate bankruptcies surged by 30% in the year ending September 2023, as reported by Reuters. Scott Stuart of the non-profit corporate restructuring group Turnaround Management Association suggested that this increase is a correction following an extended period of easy monetary policy. He noted that previously distressed companies had not addressed underlying issues. However, the broader U.S. economy experienced strong performance in the last quarter, with a 4.9% growth in GDP, driven by increased consumer and government spending. Nonetheless, businesses saw a decline in investment for the first time in two years.