UK economy set to shrink 7% or more, April PMIs dive: IHS MarkitUK economy set to shrink 7% or more, April PMIs dive: IHS Markit
FILE PHOTO: The spread of the coronavirus disease (COVID-19) in London

By David Milliken

LONDON (Reuters) – Britain’s economy is on course for an unprecedented 7% quarterly contraction after measures to slow the spread of the coronavirus forced business closures across the country last month, a business survey showed on Tuesday.

IHS Markit said its monthly Purchasing Managers’ Index (PMI) for the services sector fell to its lowest since the survey started in 1996, dropping to 13.4 in April from 34.5 in March, only a fraction better than an initial flash estimate of 12.3.

Last week’s manufacturing PMI was similarly dire, and IHS Markit said that taken together, they pointed to the deepest economic downturn “in living memory”.

A composite PMI of the two sectors dropped to 13.8 in April from 36.0 in March, far below the 50 mark that divides growth from contraction.

“The April survey reading is consistent with the economy falling at a quarterly rate of approximately 7%, but we expect the actual decline in GDP could be even greater,” IHS Markit economist Tim Moore said.

Britain’s services PMI does not include retailers, who have been hardest hit by store closures since the March 23 lockdown, or many of the self-employed.

Last month government budget forecasters set out a scenario under which the economy could contract as much as 35% in the three months to June due to the lockdown and for annual output to fall by the most in more than 300 years.

Some of Britain’s biggest companies estimated that their sales would be down by more than a fifth over the year, even with a modest recovery once lockdown measures start to be lifted.

Britain’s government will review the lockdown this week, but so far ministers have said it is too soon to relax restrictions significantly.

British people have been told to stay at home except for exercise, essential shopping, some types of work and a small number of other reasons.

The only businesses that reported doing well in the services PMI were those supporting online shopping, government contracts or financial services

The services PMI showed a small rise in business expectations to 53.2 in April from a record-low 47.9 in March, which IHS Markit said reflected firms’ hopes that they would be allowed to reopen by the summer.

“However, service providers looking to re-establish business operations overwhelmingly commented that capacity would remain well below previous levels for an extended period and any timings remain highly uncertain,” Moore said.

The government is currently discussing with company managers and trade unions how to allow more businesses to operate safely.

Under current guidelines, stores that are allowed to open such as supermarkets limit the number of customers allowed in at once and urge staff and shoppers to stay 2 metres apart.

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(Reporting by David Milliken; Editing by Hugh Lawson)