British businesses slip into deepest downturn since 2016 - GulfToday

British businesses slip into deepest downturn since 2016


A vegetable and fruit market in Stoke-on-Trent, UK. Reuters

British business suffered its deepest downturn since mid-2016 this month 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 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%, IHS Markit said, although the PMIs have overstated economic weakness recently, in part because of higher government spending ahead of Brexit.

Sterling fell to a nine-day low against the euro after the data and bond prices extended a rally that took 10-year yields down 5 basis points on the day.

Some economists said the survey weakness could be due to broader concerns about political uncertainty, rather than an outright fall in economic output.

“Markit’s survey has been excessively influenced by general concerns among businesses about the Brexit and political outlook and so has become a poor indicator of day-to-day economic activity,” Pantheon Macroeconomics’s Samuel Tombs said.

“Those concerns likely have only intensified since the general election campaign kicked off.”

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.

Addressing a wilting British economy - which has also been hit by the slowdown in the world economy caused by the US-China trade war - is likely to be among the first items in the next government’s in-tray.

“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,” said Chris Williamson, chief business economist at survey compiler IHS Markit.

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 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 Dec.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 eurozone.

With harsh lessons learnt from past Black Fridays, British retailers are stretching promotions over several weeks, aiming to smooth out consumer demand and reduce the pressure on supply and distribution networks. Brought over from the United States by Amazon in 2010, the annual event started as single day of discounting before growing into a long weekend that took in ‘Cyber Monday’.

It then grew to a week or so either side and is now getting longer and longer, though after chaos and scuffles in stores in 2014 it is now predominantly an online affair.

“We’ve re-named Black Friday, November,” John Roberts, the chief executive of AO World, the online electrical appliances retailer, told Reuters.

With recent consumer spending subdued, Brexit still unresolved and a looming national election creating new uncertainties, retailers are in need of a tonic.

AO went live with Black Friday deals, such as a KitchenAid Artisan Stand Mixer reduced from 449 pounds ($578) to 279 pounds, on Nov. 13 and some deals will run into December.

Dixons Carphone, Britain’s biggest electricals and mobile phones retailer, launched a first wave of promotions on Nov.13 on products such as laptops, TVs and vacuum cleaners, and deals will run for a few days after Black Friday itself on Nov.29.


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