A day on from the worst session in years for UK stocks and a similarly heinous rout across European indexes, the market was forced to digest still more signs of economic malaise.
The services sector in the UK contracted in September, as IHS Markit’s gauge fell to 49.5. That was well short of estimates (50.3) and a tick below the most pessimistic prediction from 33 economists (the range was 49.6 to 51.2).
This now means manufacturing, construction and services surveys are all below 50 for the first time since 2009.
The color in the report on the services industry – which accounts for some 80% of the UK economy – is foreboding to say the least.
“Only the collapse in confidence immediately following the 2016 referendum has seen a steeper overall deterioration in the economy during the past decade”, IHS Markit’s Chris Williamson said, adding that “September’s decline is all the more ominous, being the result of an insidious weakening of demand over the past year rather than a sudden shock”.
This comes on a day when Boris Johnson attempts to convince critics that he’s making an honest effort to negotiate a divorce deal that averts a crash out scenario which, by law, he is required to delay until at least January if no agreement is reached by mid-month. Many worry he will simply ignore the legislation.
“We have made a genuine attempt to bridge the chasm, to reconcile the apparently irreconcilable and to go the extra mile as time runs short”, Boris told the House of Commons. “Our proposals should now provide the basis for rapid negotiations towards a solution in the short time that remains”.
Still, he admitted, a deal is “some way” off.
Analysts are concerned. “The September PMI report leaves little scope for optimism, signaling a broad based weakening of economic conditions with Brexit being mentioned by businesses as the main culprit for falling demand”, Barclays said Thursday. “At face value, the survey suggests a 0.1% q/q contraction in Q3 GDP, much lower than our forecast of 0.3% q/q growth”.
In other words, prepare for a recession.
