Surveys reveal that UK businesses were experiencing a decline in October.

According to recent surveys, business activity in the UK continued to decline this month, while cost pressures also eased, indicating the potential risk of a recession ahead of the upcoming interest rate decision by the Bank of England next week.

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The initial “flash” reading of the S&P Global UK Purchasing Managers’ Index (PMI) for the services sector dropped to 49.2 in October from 49.3 in September, marking the lowest reading since January and staying below the no-change mark of 50 for the third consecutive month. This was contrary to expectations from a Reuters poll of economists, which had anticipated no change.

UK

Similarly, a separate survey by the Confederation of British Industry revealed a significant decrease in new orders in factories, along with a notable reduction in cost pressures and hiring intentions.

Furthermore, labor market data displayed a decline in the number of employed individuals, coupled with a slight increase in the number of unemployed individuals, although the unemployment rate remained at 4.2%. The PMI data also indicated a rise in redundancies.

S&P Global forecasted that the UK economy is likely to witness a quarterly contraction of approximately 0.1%, with business confidence hitting its lowest point of the year.

Ruth Gregory, deputy chief UK economist at Capital Economics, stated, “This supports our view that a mild recession is underway and that the Bank of England has ceased hiking interest rates.”

The PMI’s assessment of new business for the services sector dropped to its lowest level since November last year, although the recent decline in employment showed some relief.

Similar downward trends were observed in France and Germany, indicating a deepening economic downturn in the Eurozone.

These developments are expected to strengthen the likelihood of the Bank of England maintaining interest rates at their current level during the meeting on November 2. Governor Andrew Bailey recently remarked that recent data has largely aligned with the Bank of England’s expectations.

While services companies reported the smallest rise in input costs since February 2021, selling prices experienced a slightly faster increase.

A Reuters poll of economists found that just over a third of respondents anticipated a recession.

In the manufacturing sector, the PMI rose to 45.2 from 44.3 in September, representing a three-month high, although it still signified a rapid decline in output. Notably, manufacturers’ selling prices recorded the sharpest decrease since February 2016.

The composite PMI, which combines services activity and manufacturing output, showed a marginal increase to 48.6 from 48.5.

In summary, the recent surveys indicate that UK businesses remained in a state of decline during October.