UK's Economy Could Shrink Due To High Cost Of Living And Factory Slump
With the rise in the cost of living and the recent factory slump, the UK's economy is highly likely to shrink. In fact, the risk of recession has also risen significantly for the UK's economy as the interest rate remains high.
The S&P Global's PMI index turned lower and touched the 47.9 reading during August. Just a month ago (July), the same index was hovering near 50.8, which is a cause of serious concern for the economy.
If we look back, the recent PMI reading was one of the lowest and was only last seen in January 2021. At that time, the UK was going through a COVID-19 lockdown, so it is not much of a comparison at all. In simple words, the PMI reading in today's environment is similar to what we saw during the COVID lockdown.
UK PMI Is Showing A Contraction
Another important thing to take from the recent PMI reading is that any value below 50 indicates contraction, while a value higher than 50 indicates growth.
High inflation is yet another factor that troubles Britain's economy along with Brexit as well as the after-effects of the COVID. But despite all these odds, the UK's economy continues to evade recession. However, the growth in the country has also taken a hit which is taking the economy closer to the brink of full recession.
That's why an economist also pointed out how the measures taken against inflation have led to high risks of recession in the country. In addition, the composite PMI from the eurozone also touched 47.0, while it was around 48.6 during July.
The aftermath of this also pushed the Sterling Pound (GBP) lower against the Euro and the US Dollar. Similarly, the yields of the UK government bond also plunged lower amid fears of more rate hikes.
The current situation of the UK economy is not good at all, and if nothing changes, we may see a recession very soon.