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Britain and euro zone look on course to enter a double-dip recession this winter, as business surveys by IHS Markit show economic growth almost halted last month. Image Credit: AP

London: Britain and euro zone look on course to enter a double-dip recession this winter, as business surveys by IHS Markit show economic growth almost halted last month.

The IHS Markit/CIPS services Purchasing Managers’ Index (PMI) fell to a four-month low of 51.4 in October from 56.1 in September, closer to the 50 mark that represents zero growth than an initial reading of 52.3.

The composite PMI, which includes stronger manufacturing data released on Monday, sank to 52.1 from 56.5, also weaker than the initial ‘flash’ estimate.

“October data indicates that the UK service sector was close to stalling even before the announcement of lockdown 2 in England,” IHS Markit economist Tim Moore said.

“The UK economy seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021,” he added.

The new orders component in the services PMI fell sharply, and businesses shed jobs for the eighth month in a row.

From Thursday all non-essential shops, pubs and restaurants in England will close for four weeks, except where they serve takeaway food.

The restrictions are less wide-ranging than in March and April, but some economists have predicted output in November will fall by as much as 10%, reducing output for the fourth quarter by around 3%.

British gross domestic product slumped by 20% during the longer lockdown in the second quarter of 2020, the biggest decline of any major advanced economy.

Euro zone

The euro zone’s economic recovery stalled last month as a second wave of coronavirus cases and restrictions imposed to try and contain it whacked activity in the bloc’s dominant service industry, pointing to a double-dip recession, a survey showed.

Alongside their peers, Germany and France -- the 19-country bloc’s two biggest economies -- have reimposed tough lockdown measures, likely dealing a heavy blow this month as restaurants, gyms and shops remain closed and citizens stay at home.

“With lockdown measures being tightened, it is becoming increasingly hard to see how the euro zone economy will avoid falling back into decline,” said Chris Williamson, chief business economist at survey compiler IHS Markit.

“For all countries the outlook has grown increasingly dark.” The euro zone economy contracted 11.8% in the second quarter but expanded a much-better-than-expected 12.7% in July-September after many lockdown restrictions were eased, official data showed on Friday.

But rising coronavirus cases pose a serious risk to the bloc’s recovery, a Reuters poll said last month, and IHS Markit’s final Composite Purchasing Managers’ Index, seen as a good gauge of economic health, dropped to 50.0 last month from September’s 50.4, although above a preliminary reading of 49.4.

That was bang on the 50 mark which separates growth from contraction and was dragged down by the services PMI which fell to 46.9 from 48.0, its lowest since May when the first wave of the virus was sweeping across Europe.

“Service providers have been hit especially hard, led by intensifying weakness in consumer-facing sectors such as hospitality, offsetting the brighter news seen in manufacturing during the month,” Williamson said.

The IHS Markit survey was conducted largely before many of the new restrictions were put in place across Europe but forward-looking indicators were already bleak.

Services firms cut headcount for an eighth month, demand dropped further, backlogs of work were again depleted and optimism waned. The business expectations index sank to 54.2 from 59.2, and it has mostly only ever been lower this year and during the last two financial crises.

To offer support, the European Central Bank committed last week to take new action in December to contain the growing fallout, having already pumped in unprecedented stimulus.

The Bank’s policy mandate is to have inflation just below 2% but it registered -0.3% in October, official flash data showed, so policymakers are likely to be disappointed to see firms cutting prices to drum up demand.