UK in worst recession in living memory, services sector report shows

UK in worst recession in living memory: 591,000 firms at risk of going bust as car sales crash to lowest level since 1946

Households have been told to brace themselves for the worst recession in living memory as the brutal impact of Covid-19 becomes clearer.

With Prime Minister Boris Johnson preparing to lay out plans to get people back to work, details of the damage already inflicted by the lockdown on vast swathes of the economy have emerged.

A closely watched survey revealed the UK’s dominant services sector, which encompasses everything from restaurants and hotels to airlines, contracted at the fastest pace on record last month.

A survey revealed the UK’s dominant services sector, which encompasses everything from restaurants and hotels to airlines, contracted at the fastest pace on record last month

The IHS Markit/CIPS purchasing managers’ index (PMI) for services – where anything below 50 represents decline – dropped to 13.4 in April.

This is by far the worst score since the survey started in 1996, and well below the 40.1 recorded in the depths of the financial crisis in November 2008.

Tim Moore, economics director at IHS Markit, said: ‘The downturn in the UK during the second quarter of 2020 will be far deeper and more widespread than anything seen in living memory.’

It is feared economic output could fall by as much as 35 per cent in the current second quarter of the year.

The damage inflicted on Britain’s once booming motor industry also became clearer, as figures showed just 4,321 new cars were sold in April.

That was down 97 per cent on a year earlier and the lowest number since 1946, according to the figures from the Society of Motor Manufacturers and Traders (SMMT).

The lockdown has led to car showrooms and factories being closed and many customers being housebound.

The brutal impact of the pandemic means the auto industry is on course for its worst year since 1992, when the UK economy was in recession.

…but Blackrock says: BUY, BUY, BUY! 

The world’s biggest asset manager thinks it is time to start buying back into the stock market after months of volatility.

Blackrock said investors should look into ‘risk assets’ such as shares after Covid-19 wiped billions of pounds off markets. 

More than £520billion has been erased from the value of Britain’s listed firms since mid-February. The FTSE All Share index is down 22 per cent.

Now, Blackrock thinks there are opportunities to snap up stocks cheap. Mike Pyle, global chief investment strategist, said: ‘We see a strategic opportunity to allocate more to risk assets. 

‘Equities remain a key source of return in strategic portfolios even when considering changing fundamentals such as earnings declines.’

While keen to buy shares, it was cooler on government bonds – a worry for governments that need investors to buy their debt, to raise cash to pay for coronavirus aid packages.

The UK Government wants to raise £180billion to cover its needs. Bonds are seen as safe in times of uncertainty, but the lure of equities is strong for Blackrock, which thinks returns will be better on the stock market.

But veteran US investor Warren Buffett has taken the opposite approach.

His firm Berkshire Hathaway has avoided buying cheap shares, and said last week: ‘Our position will be to stay a Fort Knox.’

SMMT chief executive Mike Hawes said: ‘The market’s worst performance in living memory is hardly surprising.

‘These figures, however, still make for exceptionally grim reading, not least for the hundreds of thousands of people whose livelihoods depend on the sector.’

The lockdown enforced on March 23 has helped to stop the spread of the deadly Covid-19 but has paralysed large swathes of the economy and put vast numbers of companies on the brink.

One in ten firms – some 591,000 businesses – are at high risk of going bust as a result of the pandemic, according to analysis published today.

The report, by the CEBR thinktank and polling company Opinium, also warned more than a quarter of a million firms will not survive if the lockdown lasts for another month.

But it warned a second wave of infections and a subsequent lockdown ‘could prove fatal for the business community’.

Based on a poll of more than 500 firms, it predicted 1.1m companies could not survive another three months of lockdown. 

Pablo Shah, senior economist at CEBR, said that the findings ‘provide the first glimpse of the deep and long-term scars that the coronavirus crisis is set to inflict upon the UK economy’.

And a hard-hitting report by the Resolution Foundation warned youth unemployment could rise by 600,000 this year and ‘scar’ the long-term prospects of a generation. It predicted the figure could top one million, more than doubling the current level of 408,000.

With around 800,000 people aged between 18 and 24 set to leave education this year, the report warned the ‘corona class of 2020’ could face years of reduced pay and limited prospects.

But it also warned that younger people who have just joined the workforce, including recent graduates, are more likely to be made redundant as many firms adopt a ‘last in, first out’ policy.