UK Economy Contracts Sharply

The UK’s Purchasing Managers Index (PMI) survey for January showed the sharpest drop in business activity since COVID lockdowns two years ago, as the combination of high interest rates and low consumer demand dampened activity.

The PMI reading fell to 47.8 in January, down from 49 in December. Such a reading keeps the country in a state of contraction for the sixth consecutive month.

Analysts believe that weaker-than-expected PMI data for January highlights the risk of the UK falling into recession. Common factors exacerbating the UK’s troubles include Brexit-inspired export losses, industrial disputes, the rising cost of living and higher interest rates.

Strikes, in particular, have hit the country hard, with the UK economy losing more working days to strike action between June and November 2022 than in any six-month period over the previous three decades.

January’s poor data reflects not only short-term setbacks to growth, such as persistent strikes, but deeper damage to an economy betraying structural woes like labor shortages and loss of export market share caused by Brexit.

Emerging data worryingly showed that UK government borrowing hit $33.7 billion in December, the highest figure for that month since records began 30 years ago. This was driven by a sharp increase in spending on support for household energy bills, as well as the soaring cost of paying interest on government debt.

Despite the gloomy picture, UK business expectations for 2023 hit their highest level for eight months, boosted by hopes of an improving global economic picture and cooling inflation.