UK economy faces recession rears

24/08/2023

THE UK economy is expected to shrink between July and September which could tip the nation into a recession, according to the S&P Global/CIPS UK Purchasing Managers’ Index (PMI) report which has seen interest rates rise and household spending decrease.

A reading below 50 marks a contradiction and as the index showed August’s reading to be 47.9, the lowest level in two and a half years, concerns are now rising, however, economists said that the PMI figures showed that the Bank of England’s efforts to tame inflation were beginning to work.

The PMI index measures the health of an economy by looking at key economic measures such as orders and employment and found that activity shrank in August, seeing a sharp drop in demand for goods and services, following six months of growth.

Following the release of the report, the pound fell against the dollar and analysts have reevaluated their predictions that interest rates would peak to 5.5 per cent from 6 per cent, currently standing at 5.25 per cent after a succession of increases since late 2021 when it was close to zero.

Khalid Talukder, Co-Founder of DKK Partners commented: “The UK narrowly missed a technical recession at the beginning of the year and as concerns rise around another looming recession, businesses should remain confident that brighter times are ahead. The economy has experienced turbulent over the last few months, both shrinking and growing depending on the month. While this is concerning, it is not wholly negative and small and medium businesses who act as the lifeblood to our nation must continue business as usual while support must be shown towards them.”

“For the UK to secure a prosperous future, SMEs must be provided with government support and funding opportunities as they support our economy stabilising, while promoting innovation and ensuring our marketplace is an attractive place, promoting international relations. The UK has less friction with their largest trading block, the EU post Brexit and this must be capitalised upon. While times are tough, we should collectively focus on the future and businesses should remain robust, positioning themselves well for when the economy bounces back.” 

Dr Yi Ding, Assistant Professor of Information Systems at the Gillmore Centre for Financial Technology, commented: “As the focus remains on the turbulent economic times, seeing inflation and interest rates cause disruption across the UK, we must remember that support should be shown towards areas that promote innovation. To support the UK’s goal of cementing itself as both a financial and technological hub, investment and funding opportunities must be shown to specific sectors, and this includes the FinTech industry.”

“We need to see support shown towards start-ups, small and medium businesses, academics and research institutes, allowing innovation to flourish, job opportunities to be promoted and overseas relationships to be cemented. As the economy fights to stablise, collaboration is needed and support must continue to be shown, allowing advancements in technological developments to support our nation’s growth.”

Chris Williamson, the chief business economist at S&P global market intelligence, said: “The early PMI survey for August suggests that inflation should moderate further in the months ahead but also indicates that the fight against inflation is carrying a heavy cost in terms of heightened recession risks.

“A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival. The survey is indicative of GDP declining by 0.2% over the third quarter so far.”

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