UK heading for recession as economy shrinks by more than expected
THE UK is heading for a recession later this year, after the economy shrank by more than expected this month.
The Purchasing Managers Index showed private company output fell by the steepest amount since the last recession, excluding the pandemic impact.
The measure of economic activity for the manufacturing and services sector fell from 50.8 to 47.9 in August.
Below 50 signals an economic downturn.
The dip was blamed on interest rates causing businesses to be more cautious about spending.
Markets think the Bank of England will raise rates again next month, to 5.5 per cent, but not raise them further as previous increases seem to be tackling inflation.
A week ago, it was expected the Bank of England would have to continue raising interest rates to 6 per cent in its efforts to tame inflation.
However, these recession warnings have shocked economists, and traders are now betting interest rates will peak at 5.5 per cent.
Analysts at Pantheon Economics said that the weak PMI data “should convince the Bank to stop” raising rates.
This will cause huge relief for homeowners who will face lower remortgaging costs later this year.
Simon French, chief economist at Panmure Gordon, said: “The loss of momentum in the latest activity data really matters for UK borrowers.
“Financial markets immediately reduced the chances of further interest increases.
“This will be reflected in the borrowing rates offered by high street banks.”