UK Potentially Heading for Recession after Service Sector Slowdown

The UK could be heading for a recession in the coming weeks with activity within its all-important services sector having slowed down notably over the course of August.

According to the latest data in the UK Service Purchasing Managers’ Index from IHS/Makrit and the CIPS, the service sector is still growing across the country but only very slightly.

The closely-watched index fell from a reading of 51.4 in July to 50.6 in August, with a reading of 50 representing the line between expansion and contraction.

Meanwhile, the survey also established that optimism among managers within the service sector are collectively feeling as pessimistic about the future as they have at any point over the past three years.

The figures from the index are followed closely as an indicator of what’s going on within the economy largely because the services sector accounts for close to 80 per cent of all economic activity across the country.

Data released by the Office for National Statistics (ONS) last month indicated that the UK’s GDP fell by 0.2 per cent in the second quarter of this year.

The third quarter of the year runs to the end of September and if a second consecutive quarter of contraction is recorded then the UK will officially be in recession.

It is unclear precisely what impact Brexit uncertainty is having on activity within the services sector or across the economy but many experts take the view that the lack of clarity on the UK’s future relationship with the EU is adding to the challenges companies currently face.

A lot of observers are now convinced that the UK will indeed soon head into recession.

“After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into recession,” said Chris Williamson, IHS Markit’s chief business economist.

“While the current downturn remains only mild overall, the summer’s malaise could intensify as we move into autumn,” he added.