Recession Risk In UK Grows As Companies Go For Rapid Job Cuts

The UK is in the grip of an economic downturn as the risk of recession is growing in the country. According to a Bloomberg report, Britain's private sector companies shed workers at the fastest pace since the pandemic and the depths of the financial crisis, underscoring the Bank of England's decision to stop interest rate hikes for the first time in almost two years.

In an indication that rising interest rates and the cost of living crisis are hurting consumer demand, the latest snapshot from S&P Global and the Chartered Institute of Procurement and Supply (Cips) showed a stark decline in Britain's dominant service sector and manufacturing output in September.

The Bank of England (BOE) halted its most aggressive round of interest rate hikes in decades on Thursday in the wake of rising concerns over the economy, holding borrowing costs at 5.25% after 14 previous rises. BOE is said to have referred to the S&P Global PMI survey before taking its decision to hold interest rates at 5.25% this time.

According to the latest composite Purchasing Managers' Index (PMI) by S&P Global, The reading for September plummeted to 46.8 from 48.6 in August, the steepest decline in output since January 2021 when the country was in lockdown. The reading was worse than economists expected and plunged the private sector deeper into contraction territory.

Retail sales data also out Friday showing a smaller-than-expected bounce back in August. That suggests retail may be a drag on gross domestic product (GDP) figures for the third quarter unless September delivers a big bounce higher, said the report.

Aside from pandemic disruptions to the economy, the latest decrease in the purchasing managers' index (PMI) was the steepest since March 2009.

It is worth mentioning that earlier this year, the International Monetary Fund (IMF) warned about the health of the UK economy. It predicted the UK would perform worse than other advanced economies, as the cost of living continued to hit households.

In May this year, Germany, the world's fourth-largest economy, slipped into recession after household spending in the country succumbed to the pressure of high inflation. A recession is commonly defined as two successive quarters of contraction.

Germany's Gross domestic product (GDP) fell by 0.3% in the first quarter of the year when adjusted for price and calendar effects. That followed a 0.5% contraction in the last three months of last year.

Recession In Eurozone:

Noticeably, after Germany fell into technical recession, the remaining 19 countries that were part of the Eurozone, also sunk into recession. The list of countries that are part of the Eurozone includes Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. In June this year, figures from the EU's statistics agency showed that the eurozone entered into a technical recession at the start of the year, shrinking by 0.1 percent for a second consecutive quarter.

Is Canada also fearing recession?

On September 1, 2023, data revealed that Canada's economy unexpectedly contracted in the second quarter at an annualized rate of 0.2% and growth was most likely flat in July.

A Reuters report quoted Stephen Brown, deputy chief North American economist for Capital Economics saying, "The Canadian economy may already have fallen into a modest recession."

The quarterly slowdown was largely due to declines in housing investment and smaller inventory accumulation as well as slower international exports and household spending, Statistics Canada said.