Output across much of the economy has fallen to its lowest level since May 2020 as inflation weighs on demand, according to analysis by Lloyds Bank.
Twelve of the fourteen key sectors across manufacturing, services and construction experienced a drop in output in October, up from nine in September and the highest number to report contraction since the first lockdown. Soaring inflation was behind the decline, forcing businesses and consumers to cut back on spending to cope with rising costs, the data collated from purchasing managers’ indices showed.
The technology sector was a rare bright spot, with providers of software services reporting a rise in new orders. It was followed by the food and drink industry, which had the slowest fall in demand of any manufacturing sector.
Last week alongside the autumn statement the government’s independent financial forecaster the Office for Budget Responsibility gave a bleak assessment of the economy. It said that Britain was already in recession and it predicted that growth would shrink by 1.4 per cent next year. In 2024 it said that the economy would grow by only 1.3 per cent, a sharp downgrade from previous expectations.
Jeavon Lolay, head of economics and market insight at Lloyds Bank commercial banking, agreed that the UK economy may already be shrinking. “With both our domestic challenges and global headwinds unlikely to materially recede in the short term, the key question revolves around how long this downturn may last,” he said. “However, it is worth highlighting that there are sectors and pockets of the economy that continue to perform well.”
This economic downturn is unusual because it is coupled with record low levels of unemployment. For the three months to September the rate of those out of work stood at only 3.6 per cent.
The Lloyds Bank survey detected early signs, however, that this might be about to change. It found that employment had risen at the slowest rate in 20 months and the overall manufacturing sector had recorded its first drop in headcount since December 2020.
Economic output slumps to its lowest since first Covid lockdown