The UK economy is in a precarious position, with PMI data indicating a continued downturn.

Manufacturing drives UK's economic downturn in October as orders and staffing decrease, contributing to a pessimistic outlook due to increasing costs and sluggish exports.

Highlights

• "PMI at 48.6; third consecutive month of contraction" Paraphrased: "PMI stands at 48.6, marking the third straight month of decline."

• "Manufacturing hits eighth month of decline" Paraphrased: "Manufacturing experiences its eighth consecutive month of decrease."

• "Business optimism sinks to 2023 low" Paraphrased: "Business confidence falls to its lowest point since 2023."

The state of the UK Economy

The most recent data from the S&P Global/CIPS Flash UK PMI Composite Output Index shows that the UK private sector has been contracting for the third consecutive month, with October's index showing a slight increase at 48.6 from September's 48.5. Despite the slight uptick, the index remains below the critical 50.0 threshold, indicating a contraction rather than expansion. This decline is evident in both the manufacturing and service sectors, with manufacturing being particularly affected.

Decline in Manufacturing and Services

The manufacturing sector saw a three-month high at 45.3 in October, but it marked the sector's eighth consecutive month of decline, the longest since the 2008/09 recession. Factors affecting production included customer destocking and a lack of new orders. On the other hand, the services sector recorded a nine-month low at 49.2, with subdued consumer confidence, increased borrowing costs, and weak real estate demand being the primary reasons. However, there was some growth in activity reported in technology services.

Reduction in New Orders and Employment

New order volumes across the private sector continued to decline in October, marking the fourth consecutive month of decrease. This was attributed to corporate caution and stretched household budgets. Employment numbers also fell for the second month in a row, with non-replacement of voluntary leavers and redundancies reported in both sectors.

Dim Prospects and Low Business Confidence

Business optimism reached its lowest level in 2023, weakening for the first time since July. Both the manufacturing and service sectors expressed equal concerns about the UK's economic outlook and higher borrowing costs. Additionally, the study reveals that input price inflation eased for the third consecutive month, mainly due to softer cost pressures in services and falling purchasing prices in manufacturing.

Short-term Outlook: Pessimistic

Mounting concerns about the UK economy's direction, higher living costs, and decreasing export markets have led to a pessimistic short-term outlook. Despite the modest decline in overall output, the increasing gloom casts doubts on any immediate economic rebound. Weak demand and diminishing business optimism suggest that the UK could face a mild recession in the coming months.