Britain faces a “heightened risk of recession” after a key survey revealed that the economy’s dominant services sector went into reverse last month.
It pointed to a small fall in output in September and comes hard on the heels of gloomy surveys of the construction and manufacturing sectors.
It was only the fifth time in more than a decade that the services sector, which accounts for almost 80 per cent of the UK economy, has recorded a monthly decline in the closely watched PMI data from analysts IHS Markit and the Chartered Institute of Procurement and Supply.
Chris Williamson, chief business economist at IHS Markit, said:“A trio of grim reports on the economy means that the vast services sector has now joined manufacturing and construction in decline.
“Only the collapse in confidence immediately following the 2016 referendum has seen a steeper overall deterioration in the economy during the past decade, but September’s decline is all the more ominous, being the result of an insidious weakening of demand over the past year rather than a sudden shock.
“At current levels the surveys point to GDP falling by 0.1 per cent in the third quarter which, coming on the heels of a decline in the second quarter, would mean the UK is facing a heightened risk of recession.” He said it also made a cut in interest rates more likely.
The survey’s index fell to 49.5 in September from 50.6 in August, a much steeper drop than forecast by City economists. Any figure below 50 points to a contraction in activity. Jobs were being cut at services sector companies for the first time in five months and at the fastest rate since August 2010.
The composite index of all three major sectors fell from 49.7 to 48.8, the first back to back contraction since late 2012. Howard Archer, chief economic advisor to forecasters the EY ITEM Club, described the survey results as “worrying and disappointing”.
