Renewed lockdown sends United Kingdom economy tumbling again

Daniel Fowler
January 23, 2021

They produce a single headline figure - anything above 50 indicates a sector is growing, while a figure below 50 shows a contraction.Economists watch these surveys closely as they look ahead to coming months, while the official data, such as gross domestic product and retail sales, tends to be more backward-looking.

A key eurozone business survey showed that a majority of companies were reporting outsourcing activity for the third month in a row, while the United Kingdom equivalent index fell to its lowest level since May. However, its economy only stagnated in the final quarter of previous year according to a preliminary estimate by the Federal Statistical Office, which said last week that gross domestic product shrank 5 per cent over the course of 2020.

The outlook for the eurozone economy has deteriorated since several countries, including Germany and the Netherlands, tightened locks in recent weeks in response to a resurgence of the virus.

A preliminary IHS Markit/CIPS composite Purchasing Managers' index (PMI) fell to 40.6 in January, down from 50.4 in December, with services companies in Britain hit the hardest.

Samuel Tombs, chief economist at United Kingdom consultancy Pantheon Macroeconomics, said January PMI figures "provide more evidence that the current lockdown has damaged the economy more than the light November variety".

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The survey blamed the latest shutdown brought in by the government to limit the spread of the coronavirus and the post-Brexit shift to a more bureaucratic trading arrangement with the European Union. Manufacturing PMI fell to 52.9 from 57.5 in December.

A slide in the pound checked losses in the exporter-heavy FTSE 100, but oil majors BP and Royal Dutch Shell and miner Anglo American Plc were under pressure from weakness in commodity prices due to worries that new pandemic restrictions in China would curb demand. The slowdown pushed the composite index down, as services - which include pubs and restaurants closed due to Covid-19 - account for around 80% of the United Kingdom economy.

January's PMI for the Eurozone's manufacturing sector dropped to 54.7 against 55.2 in December, while in the service sector it slid from 46.4 to 45.

However, there were negative signs elsewhere in the eurozone manufacturing sector.

Factories fared much better, despite fading growth in output and a renewed decline in order books.

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