What directors need to watch out for
Newly released economic indicators show that the managers responsible for spending companies’ money believe that the UK’s private sector is shrinking across the board.
That’s the main headline from the latest PMI reports that were published today. According to data covering the last three months, commercial activity outside of the public sector reduced by 0.1% in the last quarter.
This is combined with similar data from the service sector which indicates that its activity slowed to barely growing too.
The data is not compiled by the government but is based entirely on regular monthly conversations with thousands of purchasing managers from all over the country in various sectors.
They measure activity, output, confidence and hiring levels and their responses are combined to produce a snapshot of how the various sectors are performing. The results are then converted into a single headline figure out of 100. Anything above 50 is considered a growing sector while under is contracting.
They’re useful for economists and other forecasters as they tend to look ahead toward coming months expectations whereas official data such as GDP and retail sales figures are backward looking.
So what else do the June figures reveal? It’s hard to find a bright spot as three out of the four trackers showed a contraction:
- Services – fell to a four-month low of 50.2
- Manufacturing – slowed to 48, the largest fall in six years
- Construction – down to 43.1, the worst figure in a decade
- Overall Private Sector – shrank for the first time in three years to 49.2
Chris Williamson, Chief Business Economist at IHS Markit who compile the figures said:
“The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the hells of steep declines in both manufacturing and construction.
“Collectively, the PMI surveys indicate that the economy has slipped into contraction for the first time since July 2016, suffering the second-steepest fall in output since the global financial crisis in April 2009.
“The latest downturn has followed a gradual deterioration in demand over the past year as Brexit-related uncertainty has increasingly exacerbated the impact of a broader global economic slowdown.
“Sentiment about the year ahead is worryingly subdued, suggesting the third quarter could see businesses continue to struggle.”
If the UK economy does follow suit when the GDP figures are released for Q2 later this month, then it will be the first quarterly contraction in seven years and could lead to heightened economic tensions ahead of Q3 results in the Autumn.
The deadline for a no-deal Brexit is October 31st and we could find out just before it that the UK has fallen into recession, defined as two or more consecutive quarters of negative GDP growth. Deal or No-deal, or indeed no brexit, the one thing the economy appears to be yearning for is certainty of what happens next.
The national wheels of industry might be slowing but what if your business is coming to a halt now? What can you do to get back on track, if you can?
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