The UK’s recovery from the Covid-19 lockdown was losing momentum even before the announcement of new restrictions to control the spread of the virus, the latest snapshot of the economy has found.
The closely watched monthly estimates from Cips/Markit found the level of activity at its lowest since June, the outlook for business at its weakest since May and jobs being shed at a rapid rate.
While the purchasing managers’ index showed the economy still growing in September, there was a marked easing from last month, when the hospitality sector received a temporary boost from the government’s eat out to help out scheme.
The Cips/Markit report flash estimate of the service and manufacturing sectors dipped from 59.1 in August to 55.7 in September. A reading above 50 indicates economic expansion, but the survey was conducted before the introduction of fresh curbs across the UK this week.
The marked dip in the PMI prompted speculation among City analysts that the UK could be heading for a tough end to 2020, particularly in light of the experience of the eurozone, where indexes of activity pointed to a virtual standstill after dropping dropped from 51.9 in August to 50.1 in September.
Sam Tombs, the chief UK economist at Pantheon Macroeconomics, said: “The economic recovery decelerated in September and is set to stall in the fourth quarter, in response to rising Covid-19 infections.
“As in the first wave of the virus, eurozone data provide a guide to the economy’s likely position in a few weeks’ time, given that UK infection numbers are tracking those in France and Spain, with a short lag.”
Chris Williamson, the chief business economist at IHS Markit, said: “The UK economy lost some of its bounce in September, as the initial rebound from Covid-19 lockdowns showed signs of fading.
“It was not surprising to see that the slowdown was especially acute in services, where the restaurant sector in particular saw demand fall sharply as the eat out to help out scheme was withdrawn. Demand for other consumer-facing services also stalled as companies struggled amid new measures introduced to fight rising infection rates and consumers often remained reluctant to spend.”
Williamson said robust growth in manufacturing, business services and finance had helped to offset the weakness of consumer-facing parts of the economy.
After contracting by a fifth in the second quarter, the economy is expected to post growth of at least 15% in the third quarter owing to the lifting of restrictions from May onwards. The stamp duty holiday, the temporary cut in VAT, the eat out to help out scheme and an increase in the number of summer holidays taken in the UK all boosted activity.
But Williamson said jobs have been shed throughout the pick-up in output, and continued to do so at a “fierce rate” in September as firms tried to reduce costs amid weak demand. Unemployment was likely to soon start rising sharply from the current rate of 4.1%,” he added.
“The indication from the survey that growth momentum is quickly lost when policy support is withdrawn underscores our concern over the path of the labour market once the furlough scheme ends next month and raises fears that growth could fade further as we head into the winter months, especially as lockdown measures are tightened further.”