The latest index reported was for the services sector in August that showed its biggest drop in a decade, falling by 4.3 points – the record fall is 4.5 in April 2001. This movement goes against the “previously robust pace of growth” in July.
The all-sector index fell sharply to 50.9 in August from 54.3 in the previous month, its lowest level since June 2009. To put this 3.4 point fall in context, the highest ever drop was by four points in October 2007 when Northern Rock went under, while the levels were 3.5 and 3.7 immediately as and after Lehman Brothers collapsed.
OBR clash
Chris Williamson, the chief economist at Markit, commented: “The sharp drop in the all-sector PMI in August takes the index to a level which is historically consistent with a loosening of policy by the Bank of England. The data will therefore add weight to calls for the Bank of England’s Monetary Policy Committee to inject more stimulus into the economy through more asset purchases or quantitative easing.”
Elsewhere, the manufacturing output index suffered with export sales struggling as the New Export Orders Index showed one of is most dramatic falls ever. Williamson suggests the manufacturing output is contracting by 1% each quarter as opposed to the official figure of 0.5%.
Williamson describes the Office of Budgetary Responsibility’s current forecast for GDP growth as “totally unrealistic”, saying: “Given the weak growth of the economy in the first half of the year (0.5% in Q1 and 0.2% in Q2), growth of 1% would be needed in each of Q3 and Q4 to achieve the Office for Budget Responsibility’s forecast of 1.7% expansion for the year as a whole.
“If zero GDP growth were to be seen in Q3, which the PMIs suggest is a real possibility, followed by a recovery of 0.5% in Q4, the British economy would have grown only 1% in 2011.”
