The chart that shows the UK economic recovery is 'on its knees'

The latest round of industry surveys of the three main sectors of the economy suggest GDP growth might have fallen to zero

Ben Chu
Thursday 05 May 2016 12:35 BST
Services activity in April was its weakest since February 2013
Services activity in April was its weakest since February 2013 (Getty)

The latest survey of the UK’s dominant services sector has today rounded off a dismal hat-trick of disappointment for the British economy.

The Markit/CIPs PMI Index for April came in at 52.3. That’s above the 50 point that separates contraction from growth. But it’s also the weakest reading since February 2013, when the economy’s recovery was just starting.

And it follows two pretty desperate readings this week from the equivalent PMIs for the manufacturing and construction sectors, which both showed the feeblest levels of activity in around three years.

Put all these three readings together and one gets the “composite” PMI which can be used to roughly approximate to GDP growth in the overall economy.

And combine these two metrics in the chart below (from Pantheon Macroeconomics) and you get this grim picture:

The blue line (left hand scale) shows the level of the composite PMI. The black line (right hand scale) shows the % quarterly rate of GDP growth. They track reasonably well over time. And the decline in the composite reading suggests GDP growth, which weakened to 0.4 per cent in the first quarter of 2016, could be heading down to zero in the second quarter.

What’s going on? Samuel Tombs of Pantheon says business and consumer jitters emanating from uncertainty about the outcome of the Brexit referendum has “brought the recovery to its knees”.

More economists are now seriously talking of the possibile need for macroeconomic stimulus to get the recovery back on track.

“The deterioration in April pushes the surveys into territory which has in the past seen the Bank of England start to worry about the need to revive growth either by cutting interest rates or through non-standard measures such as QE [Quantitative Easing]" said Chris Williamson of Markit.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in