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Latest UK and European PMI Surveys Warn of Recessions Already Underway 

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The latest round of S&P Global PMI Surveys of manufacturing and services sectors suggested on Friday that UK and Eurozone economies may already have entered recession in the third quarter of the year if analyst and economist readings of the data are anything to by. 

Britain's breadwinning services industry struggled in September with the S&P Global PMI reading of industry conditions falling from a downwardly-revised 50.9 to 49.2, taking it beneath the 50.0 threshold that is thought to denote the difference between industrial expansion and contraction.

For the economy overally, the much larger size of the services sector means that September's decline is likely to have more than offset an increase in the manufacturing sector PMI from 47.3 to 48.5, an outcome that signifies a mere lessening of a downturn thought to have been underway since August.

"The weak reading has increased risks that the UK is already in recession, but weaker demand does not yet appear to have tempered labour market and price indices, which the MPC will be watching closely," say Fabrice Montagne and Abbas Khan, both economists at Barclays. 

"Despite weakness in activity, employment and prices continue to show resilience," both wrote following a Friday review of the data. 


Above: Unemployment indicators taken from S&P Global PMI and other surveys. Source: Barclays.


Separately, and a short time earlier, S&P Global had released almost equally as gloomy numbers for Europe's equivalent PMI surveys.

The S&P Global Manufacturing PMI, which is most important for the European economy overally, fell from 49.6 in August to 48.5 in September.

Meanwhile, the less significant but still important barometer of the services industry fell from a downwardly-revised 49.8 in August to 48.9 in September. 

"Putin’s war and the ensuing surge in energy prices are taking a heavy toll on the European economy. Following the plunge of consumer confidence to record lows, more and more businesses are starting to feel the pinch. Grappling with sky-high energy prices, consumers have less money to spend on other goods and services. Tightening financial conditions add to the woes," says Holger Schmieding, chief economist at Berenberg.

"Roughly in line with the trend in the Eurozone, UK business activity declined in September at the worst pace since January 2021 according to the flash PMI surveys. Although the manufacturing output index even edged up from a dismal 42.7 in August to 44.4 in September, it continues to signal a significant fall in output. Judging by the drop in the services sector activity index from 50.9 in August to 49.2 in September, services are also descending into recession," Schmieding also said on Friday.


Source: Berenberg. 


The UK's survey results were released against a backdrop of broad weakness and risk aversion in global financial markets, which appeared to be made worse for Sterling assets by Chancellor Kwasi Kwarteng's budget-like fiscal announcement in parliament. 

This provided significant support to companies and households as part of an effort to mitigate risks stemming from energy prices while also offering up large cuts to taxes for businesses and individuals, which prompted a deeper sell-off in the UK goverment and further weakness for Sterling.

Meanwhile, in Europe attention was also on energy markets and developments in Ukraine where Russian occupation forces are expected to be reinforced through an attempted Kremlin call-up of reserve personnel following significant recent setbacks for the invading army at hands of Ukrainian forces.

"The preliminary readings for the Euro Area and UK PMIs (September) were generally weak across the board. The UK Composite PMI printed at 48.4 (49.6 previously) and the Euro Area equivalent reading was recorded at 48.2 (48.9). Weaker still was Germany's Composite PMI reading at 45.9, given the notable deterioration in the Services PMI," writes Stephen Gallo, European head of FX strategy at BMO Capital Markets, in a Friday research briefing. 

"The combination of soaring power costs, staff shortages, and weaker real demand all seem to be taking their toll. Note: German Services inflation in YoY terms has been on a moderating trend since April, which perhaps suggests that firms within the industry are losing pricing power. The outlook for the sector will also be affected by the risk of power shortages this winter," Gallo added.