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Economy plunges into deep freeze: Lockdown threatens to hammer GDP in this quarter by at least 7% as output falls off a cliff

Economy plunges into deep freeze: Lockdown threatens to hammer GDP in this quarter by at least 7% as output falls off a cliff
  • Markit/CIPS Flash UK composite PMI fell to a new record low of 12.9 
  • Figures show dire impact of lockdown on service sector and manufacturers 
  • Britain's economy looks set to fall by 7% or more quarter-on-quarter, experts say 
  • Dismal economic data raises questions about future of lockdown
The huge impact of the Covid-19 pandemic on Britain's economy is starting to emerge, fresh data revealed today.  
With the services and manufacturing sectors thrown into deep freeze, output in both sectors has fallen off a cliff. 
The closely-watched Markit/CIPS Flash UK Composite Purchasing Managers' Index fell to a new record low of 12.9 - down precipitously from an already low reading 36 in March. A reading of 50 or above indicates economic growth, and anything below contraction.
The figures from IHS Markit suggest Britain's economy is on track for a 7 per cent quarter-on-quarter drop, with many fearing the decline will be more severe.
The figures, which do not even include activity among the self-employed and in the retail sector, raise questions about whether lockdown measures should continue in the face of a dire economic fallout. 
Hotels, restaurants, hairdressers, factories, pubs, bars and nightclubs have all been forced to shut their doors for weeks, prompting firms to furlough or lay off millions of staff. 
Dire: The Markit/CIPS Flash UK Composite Purchasing Managers' Index fell to a new record low of 12.9, down from 36 in March
Dire: The Markit/CIPS Flash UK Composite Purchasing Managers' Index fell to a new record low of 12.9, down from 36 in March
Closed: The prolonged lockdown is having a serious impact on businesses all over Britain
Closed: The prolonged lockdown is having a serious impact on businesses all over Britain
'The dire survey readings will inevitably raise questions about the cost of the lockdown, and how long current containment measures will last,' Chris Williamson, chief business economist at IHS Markit, said. 
Before today, the survey-record composite low was 38.1 in November 2008 during the heat of the financial crisis. 
Employment in British companies fell at the fastest pace since PMI records started in the 1990s. 
UK Hospitality, which represents businesses like hotels, has today warned that an extended period of social distancing measures could cost one million jobs unless measures to protect hospitality businesses are put in place. 
Hit hard: The service sector has been hit extremely hard by the pandemic
Hit hard: The service sector has been hit extremely hard by the pandemic 
Jobs: The number of jobs available in Britain has plummeted, new figures show
Jobs: The number of jobs available in Britain has plummeted, new figures show

Eurozone economy suffers record drop

It isn't only Britain feeling the heat from the economic fallout triggered by the pandemic.
The Eurozone economy suffered the biggest falls in employment and activity on record in April as governments across the continent all but shut down their countries in response to the spread of coronavirus.
The IHS Markit composite purchasing managers’ index slumped to 13.5, marking the lowest score since records began over two decades ago. 
The reading was well below last month’s score of 29.7, which was itself a record low. A score of under 50 indicates contraction. The lowest score seen during the financial crisis was 36.2.
Analysts are already giving gloomy predictions about how long it will take the economy to recover.
James Smith, an economist at ING, said: 'The sharp decline in UK PMIs emphasises the sheer scale of the economic hit from Covid-19. 
'But the more important concern now is the recovery, and despite bold economic measures from the government and Bank of England, we expect this to be a slow process.'   
On Wednesday, figures from the Office for National Statistics revealed that inflation fell to 1.5 per cent in March, down from 1.7 per cent in February.
The Bank of England has already made two emergency interest rate cuts, decimating the base rate to 0.1 per cent. 
The move spells more dismal news for savers struggling to get a decent return on their cash, while cheap mortgage deals will be on the cards when the housing market gets moving again.
Empty: High Streets have become like ghost towns all over the country as lockdown rolls on
Empty: High Streets have become like ghost towns all over the country as lockdown rolls on
hut: Restaurants, cafes, bars, pubs and nightclubs have all been shut during the pandemicShut: Restaurants, cafes, bars, pubs and nightclubs have all been shut during the pandemic

Manufacturing and services in disarray

Today's PMI figures reveal that output in the manufacturing and service sectors dropped by 40.1 points over two months to 12.9 in April, from 53.0 in February.
Over 80 per cent of UK service providers, from businesses like hotels and restaurants, and 75 per cent of manufacturing companies reported a drop in business activity during April, which was overwhelming attributed to coronavirus. 
New business and backlogs of work fell at record rates, while prices charged were also cut significantly by some manufacturing and service sector companies, the data reveals.
Service sector activity deteriorated to a record low of just 12.3, marking the lowest level since records began in 1996. This was down from 35.7 in March, 53.2 in February and a 16-month high of 53.9 in January.
In the manufacturing sector, the PMI fell to 32.9 in April, down from 48 in March and over 51 in February. 
Chris Williamson, chief business economist at IHS Markit, said the slump indicates the reading was consistent 'with GDP falling at a quarterly rate of approximately 7%'.
He added: 'The actual decline 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.
'Business closures and social distancing measures have caused business activity to collapse at a rate vastly exceeding that seen even during the global financial crisis, confirming fears that GDP will slump to a degree previously thought unimaginable in the second quarter due to measures taken to contain the spread of the virus.' 
The FTSE 100 index dipped slightly as the IHS Markit figures were published and is currently hovering around the 5,766.93 mark. The pound is down to around $1,23 against the US dollar and at €1.15 against the euro. 

'Britain's ecoonomy in the twilight zone'

Duncan Brock, a director at CIPS, says Britain’s economy has entered the "twilight zone".
He said: 'Though this significant and further deterioration from last month’s results came as no great surprise, it is no less devastating. 
'Manufacturing output sometimes shrank into almost nothing as the pandemic’s grip took hold and factory closedowns at home and abroad made regular production schedules impossible. 
'Supplier delivery times lengthened to an unprecedented extent. Some manufacturers commented on switching plant capacity to assist healthcare supply chains. 
'Meanwhile, service providers ramped up their online operations to survive, but others just hit a dead stop, shedding jobs and facing extreme cash flow difficulties. 
'The overall services fall in output was faster than manufacturing and the steepest since records began in 1996 as social distancing measures enforced for the population stopped everything in its tracks and an eerie silence descended over the UK’s streets.'

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