UK heading for recession of ‘unprecedented’ scope amid coronavirus pandemic Warnings that downturn could be worse than the Great Depression of the 1930s

Fears are growing that the UK is heading towards a recession of “unprecedented scale and depth” after UK business activity slumped to its worst level in more than two decades last month.

The latest data on the economic fallout from the coronavirus health crisis showed the UK services sector, which represents around 80 per cent of the nation’s economic output, scored an all-time low of 34.5 in March according to the IHS Markit/CIPS purchasing managers’ index (PMI). It is down from 53.2 in February and anything below 50 is considered a contraction.

Bars, pubs and restaurants have been forced to close their doors, costing thousands of jobs, and helping to suck the sector into a “black hole”, experts said.

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True picture ‘much worse’

Andrew Wishart, UK economist at Capital Economics, said the UK economy is entering “a recession of unprecedented scale and depth”. He said the survey data may even be understating coronavirus’s effect on gross domestic product (GDP).

“The fact many firms have had to cease trading altogether means the true picture is much worse,” he said. “We are forecasting a 15 per cent fall in GDP in the second quarter.”

If Mr Wishart’s forecast turns out to be accurate, the UK economy would suffer a greater hit than during the financial crisis 12 years ago and even the Great Depression that followed the 1929 Wall Street crash.

Economy in a ‘black hole’

“The services sector was sucked into a black hole and flung into the unknown by the forceful impact of the coronavirus, affecting every area of supply chains from transport to purchasing levels and job creation,” said Duncan Brock at the Chartered Institute of Procurement and Supply.

“The abrupt drop in new orders was the sharpest since the survey began in 1996, according to the PMI data.”

It had a knock-on effect on jobs, with service companies parting ways with more employees than at any point since 2009, despite Government guarantees to cover 80% of the salaries of furloughed workers.

Economic devastation

Tim Moore, economics director at IHS Markit, said: “There were numerous reports from survey respondents that placing staff on furlough had helped to mitigate more widespread job losses in March.

“However, employment levels across the service sector still dropped at the fastest pace for more than a decade, reflecting some forced redundancies and the non-replacement of departing staff amid widespread hiring freezes.”

Meanwhile the composite output index dropped to 36.0 in March, down sharply from 53.0 in February, and its lowest level since January 1998 when the survey began.

Mr Brock added: “It’s increasingly difficult to find the words to describe the devastation as every region in the world fights to save human life as the first priority.

“The likelihood of a global recession is now a given, though its duration and severity has yet to reveal itself. One thing is for certain, with the lowest business optimism for over 20 years, the immediate outlook for the services sector is beyond grim.”