Recession ‘increasingly likely’ in UK: Private sector faces rapid job cuts, fuelling concerns

The United Kingdom’s private sector is enduring its most rapid rate of job cuts since the global financial crisis more than a decade ago. New data from S&P Global has shown that the nation could be sliding towards a recession, with the labour market showing signs of loosening, Bloomberg reported.

The reading for September, according to the latest composite Purchasing Managers’ Index (PMI) by S&P Global, plummeted to 46.8 from 48.6 in August. This sharp decline has surpassed economists’ expectations and thrust the private sector deeper into an area of contraction. The PMI indicator slipped below the 50-mark threshold, signalling contraction for the second consecutive month.

S&P Global pointed out a drastic shift in the employment landscape. It’s the quickest rate of job eliminations seen since October 2009, aside from periods affected by pandemic-related lockdowns. This revelation intensifies existing fears about the UK’s economic stability.

Although the Bank of England has been making strides in its battle against inflation, the weakening labour market complicates the scenario.

“A recession is looking increasingly likely in the UK,” Bloomberg quoted Chris Williamson, chief business economist at S&P Global Market Intelligence, as saying.

The plummeting employment rate, according to Williamson, severely undermines the negotiating power for wages. “A major concern in the inflation outlook has been wage growth,” he pointed out.

Business activity in the private sector is also suffering, recording its steepest downturn since March 2009, outside of the pandemic’s impact. Companies attribute this slump to a crisis in the cost of living and escalating interest rates, which have both suppressed demand.

Despite the bleak economic outlook, there’s a silver lining as input price inflation recorded its largest monthly drop so far in 2023. This may add some momentum to the Bank of England’s efforts to curb inflation, although it does little to alleviate the broader concerns about the economy.

(With Bloomberg inputs)