The UK economy is heading for a huge downturn as the country grapples with the fallout from the coronavirus pandemic. With unemployment soaring, most high street stores shut and public borrowing set to surge, economists have warned there is huge uncertainty over how quickly the economy will be able to recover from the outbreak. It comes as a business survey recorded the worst monthly decline in economic activity on record.
The Purchasing Managers’ Index (PMI) for March, released on Tuesday morning, showed the UK economy is suffering a steeper drop in activity than during the 2008 financial crisis.
The measure, which combines services and manufacturing readings, was at its weakest since the series began in 1998.
The survey gave a reading of 37.1, plunging from 53 the previous month and lower than the 38.1 registered during the 2008 financial crash.
The score indicated the economy is suffering a deep contraction, with any reading above 50 signalling growth.
The services industry, the largest proportion of the British economy, led the decline with a record-breaking plunge as shoppers, diners and drinkers stayed at home.
But, the most alarming finding was the data was based on economic activity between March 12-20, before Boris Johnson mandated the closure of pubs, restaurants and all non-essential shops.
Chris Williamson, chief business economist at IHS Markit, which runs the survey, said: “This decline will likely be the tip of the iceberg and dwarfed by what we will see in the second quarter.
“The colossal drop in the composite PMI – more than three times bigger than its previous record decline – signals clearly that the economy is hurtling towards a deep recession.”
Adam Slater, economist at Oxford Economics, estimated a 12-week lockdown would slash consumption by between 18 and 32 percent.
He said this would have a “very large” impact on GDP, and estimated a reduction of between 13-22 percent.
Paul Dales, economist at Capital Economics, said: “It’s clear we are in the early days of a big recession.”
Public borrowing is also likely to take a hit in the coming months, after the Government pledged to fund 80 percent of lost earning for many private sector workers.
Chancellor Rishi Sunak is expected to make similar measures for the self-employed later today.
Isabel Stockton, a research economist at the Institute for Fiscal Studies, expects borrowing to exceed £175billion (more than eight percent of national income) in the coming financial year.
She said: “Large increases in borrowing are well-advised to address the current crisis, but the consequences for the public finances will be felt long after the immediate public health emergency has hopefully passed.
“Debt which is already high by recent historical standards will jump up again and is likely to remain elevated for some time to come.”