UK Economy Shrinks as Services Sector Hit Hard by New Lockdown

A waiter poses for photographs as he waits for customers outside a restaurant after it reopened, in London on July 5, 2020. Peter Nicholls/Reuters

British business activity contracted in November as the UK’s huge services industry suffered from new COVID-19 restrictions, including the second lockdown in England.

An early “flash” reading of the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI) (pdf), a gauge of private sector growth, showed it had tumbled to a five-month low of 47.4 in November from 52.1 in October, ending a four-month period of expansion.

The downturn was driven by the fastest reduction in service sector output since May amid temporary business closures among leisure and hospitality companies, the survey showed.

The under-performance of the service economy relative to the manufacturing sector was the widest in almost 25 years of data collection, reflecting the severe impact on business activity from a second lockdown in England and tightened restrictions across the rest of the UK amid the CCP (Chinese Communist Party) virus pandemic.

In contrast to the services sector, manufacturing production expanded at a robust pace during November and the rate of growth accelerated since the previous month. The growth was mainly linked to a sustained recovery in production volumes after stoppages at the start of the pandemic.

However, the latest manufacturing PMI survey pointed to a sharp lengthening of supplier delivery times amid severe delays at UK ports, alongside a robust degree of stock building as manufacturers sought to accumulate critical inputs before the end of the Brexit transition period on Dec. 31.

The month-long national lockdown in England is due to end on Dec. 2. Prime Minister Boris Johnson set out new measures on Monday to strengthen the three-tiered system of regional restrictions to reflect differences in infection rates.

Chancellor of the Exchequer Rishi Sunak warned of the economic consequences of the lockdown measures.

The British people will soon see the “economic shock laid bare” and the country cannot sustain record levels of public borrowing, he told The Sunday Times.

Recent news of positive developments in vaccine research has spurred business confidence about the year ahead, the PMI survey found.

But Andy Haldane, Bank of England chief economist, said the pandemic will leave “lasting scars.”

“The vaccine announcements of the past few weeks offer hope at the end of the tunnel,” Haldane said on Monday in comments to a conference for charities organised by Civil Society Media.

“Nonetheless, even with a vaccine, it’s clear this crisis will lead to some lasting scars, particularly on the poorest and the most disadvantaged.”

Reuters contributed to this report.