UK businesses slip into deepest downturn since 2016

British business this month suffered its deepest downturn since mid-2016 as the approach of a national election exacerbated uncertainty about Brexit, according to a survey which augured badly for the economy.

The first “flash” early reading of the IHS Markit/CIPS UK Purchasing Managers’ Indexes (PMI) for Britain showed on Friday that the decline in both the services and manufacturing sectors has quickened in November.

The readings suggested the world’s fifth-biggest economy is contracting at a quarterly pace of 0.2%, although the PMIs have overstated economic weakness recently in part because of higher government spending ahead of Brexit.

Still, the outlook for next year looks doubtful: Brexit uncertainty is still weighing on business investment at home, while the U.S.-China trade war has stymied the world economy.

Addressing a wilting British economy is likely to be among the first items in the next government’s in-tray.

The two main political parties contesting the Dec. 12 vote offer contrasting plans for the world’s fifth-largest economy.

Prime Minister Boris Johnson’s Conservatives promise to deliver Brexit, while Labour says it wants to be the most radical socialist government in British history.

“With an upcoming general election adding to Brexit-related uncertainty about the outlook, it’s no surprise to see UK businesses reporting falling output and orders in November,” Chris Williamson, chief business economist at survey compiler IHS Markit, said.

“The PMI surveys are not only warning that the underlying trend in the economy is deteriorating markedly, but also that the labour market is cooling.”
The PMI for the dominant services sector fell to 48.6 in November from 50.0 in October, its lowest level since July 2016, just after the Brexit vote.
Readings below 50 denote contraction.

The manufacturing PMI dropped to 48.3 from 49.6 as a stockpiling drive before the aborted Oct. 31 Brexit deadline evaporated.

The survey, closely watched at the Bank of England, adds weight to the views of two of its nine monetary policymakers who earlier this month voted for an interest rate cut.

“The big question will be just how long can the Bank of England hold its nerve in keeping policy unchanged,” Williamson said.

The composite PMI, which combines the services business activity and services and manufacturing output readings, fell to 48.5 from 50.0, also its lowest level since July 2016.

In a bleak sign for coming months, backlogs of work declined at the fastest rate since 2012.

The final PMI readings for the manufacturing and services sectors will be published on Dec. 2 and 4 respectively.

Data show an average difference of 0.7 points in absolute terms between the “flash” and final versions of the UK composite PMI, compared with 0.2 points for the euro zone.