UK Business Contraction Raises Alarm: Recession Concerns Escalate

27 Aug, 2023

UK Business Contraction Raises Alarm: Recession Concerns Escalate

Economists are sounding the alarm as recession fears intensify following the release of new data, revealing a significant and unexpected downturn in UK business activity throughout August. This development has raised concerns that the country's economy is at a heightened risk of recession.

In a concerning parallel to the 2008 banking crisis, the most recent Purchasing Managers' Index (PMI) reflects one of the steepest drops in British business activity. The S&P Global-CIPS Flash UK PMI plummeted from 50.8 in July to 47.9 in August. This sharp decline has been attributed to reduced orders and increased borrowing costs faced by UK companies. Both the services sector and manufacturing industry have been jolted by unexpected contractions.

Spearheading the analysis, Chris Williamson, the chief business economist at S&P Global Market Intelligence, has highlighted the substantial consequences of tackling inflation through higher interest rates. He stressed that this strategy comes at a considerable cost, amplifying the risks of an impending recession. Williamson also noted that the economy's contraction appears inevitable, driven by a deepening manufacturing downturn combined with the faltering of the service sector's earlier revival.

Meanwhile, Citi, a prominent investment bank, has forecasted that the UK is likely to slip into a recession. Their prediction extends to global growth in 2024, which is expected to decelerate to less than 2 percent. This anticipated downturn is attributed to recessions in the UK and the US, as well as a notable slowdown in China's economic growth.