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PMI data shows UK economy hit harder than in Financial Crisis

24 March 2020

Latest Purchasing Managers’ Index (PMI) data for the UK, EU countries and the US, shows that as businesses across all sectors are shutting up shop, the impact on economies is now worse than during the height of the Financial Crisis. However, expectations are of a u-shaped recovery.

The UK Composite, conducted prior to the announcement that pubs, clubs and theatres etc had to close, was 37.1, with 45.0 expected and against 53.0 last month. The French and German PMIs released on 24 March were generally much worse than expectations and reflect the collapse in activity. The Eurozone Composite PMI fell to 31.4 from 51.6 last time against consensus expectations of 38.8. The US PMI data reflects that of Europe and the UK; manufacturing better than expected, services worse, albeit both much worse than last month.

Commenting, Neil Birrell, chief investment officer at Premier Miton, said the UK PMIs were “very disappointing”.

“The economy was in rapid decline even before the ‘lock-down’. Government action to support the economy has been announced, but it can’t come into action fast enough. It’s difficult to find much to be positive about in all this.”

In respect of Europe, he added: “The region is in a steep economic downturn and a recession is coming. The ECB and governments need to keep up their support.”

Adam Vettese, an analyst for multi-asset investment platform eToro, said: “The Coronavirus pandemic is having a more devastating effect on markets and economies than even the great financial crisis of 2007-08.

“PMI data for February shows the outbreak has had a crippling effect on business activity, which has suffered its largest fall on record.

“Activity levels will almost certainly be lower next month as a result of the Government’s emergency public health measures and its intervention in the economy.

“UK plc is currently on life support and that won’t change for the foreseeable future.”

Adrian Lowcock, head of personal investing at investment platform Willis Owen, said the fall was “unprecedented” and “the worst on record, with the decline in activity more than the previous record low and the pace of the fall more than three times the scale of the previous biggest drop.”

But, he added, it was also “unsurprising”. However, unlike the financial crisis, the government’s response to the coronavirus crisis has been to actively cut GDP.

Lowcock said: “PMI data is pretty irrelevant now as it doesn’t tell market participants anything they didn’t already know. The focus in the coming weeks and months should be on the progress of halting coronavirus, and then the policies from government and central banks can support a recovery.

“The most likely scenario is still currently a u-shaped recovery, but the longer the crisis lasts the longer the recovery will take.”

Ex Bank of England Governor Sir Mervyn King is also reported to have pointed out any economic downturn would not be in the traditional sense, as government suppression of economic activity, when lifted, should result in a rebound.

Richard Pearson, director at investment platform, EQi, added: “For retail investors, the message remains keep calm. Everything is being done to minimise the impact on the economy, which should eventually feed into the markets. This really is a time when taking a long-term view is important.”

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