HomeEconomic IndicatorOctober survey reveals UK businesses facing challenges as growth falters, according to...

October survey reveals UK businesses facing challenges as growth falters, according to Reuters analysis.

UK Businesses Face Continued Decline in October, Survey Reveals

Business Activity Decreases, Cost Pressures Ease

Britain’s businesses have experienced yet another decline in activity this month, with cost pressures cooling further, according to a recent survey. The findings highlight the risk of a recession as the Bank of England prepares for its upcoming interest rate decision. The “flash” preliminary reading of the S&P Global UK Purchasing Managers’ Index (PMI) for the services sector dropped to 49.2 in October, the lowest reading since January. This marks the third consecutive month below the 50 no-change mark.

New Business Deteriorates, Employment Situation Eases

The survey also revealed that the gauge of new business reached its lowest level since November last year. However, there was some relief as the recent deterioration in employment showed signs of easing. Services companies reported the smallest increase in input costs since February 2021, although selling prices rose slightly faster.

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Concerns Mount as Unemployment Rises

The latest labor market data released on Tuesday showed a decline in the number of employed individuals and a rise in unemployment. The PMI survey also indicated an increase in redundancies. Overall, the survey suggests a quarterly decline in economic output of around 0.1%, with optimism in boardrooms reaching its lowest point this year.

Mild Recession Predicted, Interest Rate Hike Unlikely

Experts predict that a mild recession is currently underway, leading to the belief that the Bank of England will refrain from further interest rate hikes. Ruth Gregory, deputy chief UK economist at consultancy Capital Economics, stated, “This supports our view that a mild recession is underway and that the Bank of England has finished hiking interest rates.”

Euro Zone Experiences Worsening Downturn

The PMI readings from France and Germany also point to a worsening downturn in the euro zone. As a result, it is expected that the Bank of England will keep interest rates unchanged in their forthcoming meeting on November 2. Governor Andrew Bailey has indicated that recent data aligns with the Bank’s expectations.

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Manufacturing Sector Shows Contraction, Selling Prices Decline

The PMI for the manufacturing sector rose slightly to 45.2, indicating a three-month high but still signaling a rapid contraction in output. Notably, manufacturers’ selling prices contracted at the fastest rate since February 2016. The composite PMI, which combines services activity and manufacturing output, saw a marginal increase to 48.6 from 48.5.

In conclusion, the survey results underscore the challenges faced by UK businesses, with declining activity and ongoing cost pressures. As the prospect of a recession looms, the Bank of England is unlikely to pursue further interest rate hikes. The downturn in the euro zone further exacerbates concerns. The manufacturing sector continues to contract, with declining selling prices adding to the pressures. These findings reflect the current economic landscape and the need for cautious decision-making moving forward.

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