As many experts have previously feared would happen, Britain’s economy could be headed for a recession. Industry figures are now showing the sharpest monthly decline in private sector activity, not including during the pandemic, since the financial crisis. Find out more about how this happened and how officials are handling it by reading on.
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How did we get here?
According to the latest snapshot from S&P Global and the Chartered Institute of Procurement and Supply (Cips), higher interest rates and the current cost of living crisis have joined forces to weaken consumer demand. Service sector activity and manufacturing output fell significantly in September. And not including the period of COVID, the purchasing managers’ index (PMI) decrease was the steepest since March 2009.
In the private sector, total new work fell for the third month in a row. Firms point toward cost of living pressures, higher borrowing costs, and cutbacks in the real estate and construction sectors as heavy influencers of the current state of affairs.
Moreover, the S&P Global/Cips UK PMI composite index (which is a weighted average of the Manufacturing Output Index and the Services Business Activity Index) fell from 48.6 in August to 46.8 in September. Any figure below 50.0 is indicative of an overall reduction in service sector output. This is significant because two consecutive quarters with a contraction means that the economy is in a recession.
Bank of England response
In response to these latest figures, the Bank of England did not move forward an expected rate increase, one that would have been its most aggressive round of interest rate hikes in decades.
Amidst growing concerns over the economy, after 14 previous rate rises, they decided to hold borrowing costs at 5.25%.
What will the future hold?
While there has been some recovery in consumer spending, the disappointing PMI results are just the culmination of the UK’s deteriorating situation, meaning that a recession is nearly imminent. To safeguard against upcoming potential financial strain due to this possibility, be sure to contact your trusted Dental & Medical Financial services adviser.