Conducted last week, before the government ordered the closure of all pubs, restaurants and other non-essential businesses open to the public late on Friday, the monthly Purchasing Managers’ Index (PMI) points to the economy shrinking at a quarterly rate of 1.5-2.0%.
“This decline will likely be the tip of the iceberg and dwarfed by what we will see in the second quarter,” said Chris Williamson, chief business economist at IHS Markit, which compiles the survey.
At the worst point of the 2008-09 recession, Britain’s economy shrank 2.1% in a single quarter.
Economists at Morgan Stanley forecast British economic output will shrink by around 10% or more in the three months to the end of June, and just over 5% in 2020 as a whole, if social restrictions can be relaxed in the second half of the year.
“Should the outbreak - and the associated economic hit - be more prolonged than anticipated, we think that both the Bank of England and the Treasury could ramp up their response, with more spending and more QE,” Morgan Stanley economist Jacob Nell said.
Britain’s central bank restarted quantitative easing (QE) asset purchases last week.
The flash composite PMI - which includes about 85% of firms in the full survey - sank to 37.1 in March from February’s 53.0, its lowest since the survey started in January 1998 and below all forecasts in a Reuters poll of economists. The services component sank to 35.7 from 53.2, also a record low.
“Any growth was confined to small pockets of the economy such as food manufacturing, pharmaceuticals and healthcare. Demand elsewhere has collapsed ... as increasing numbers of households and businesses at home and abroad close their doors,” Williamson said.
There was little immediate market reaction to the data, with sterling still close to the 35-year low it struck last week as fears of the virus drove investors into U.S. dollars.
The decline was mirrored in PMI data across the euro zone and as far afield as Australia and Japan, highlighting the global nature of the economic crisis. U.S. surveys were similarly dire.
Let us not seek the Republican answer or the Democratic answer, but the right answer. Let us not seek to fix the blame for the past. Let us accept our own responsibility for the future.