Business activity has dropped sharply in the eurozone and the UK in the latest sign that tighter restrictions to contain rising coronavirus infections are dragging economies towards a double-dip recession.
A key eurozone survey of companies showed a majority of businesses reporting contracting activity for the third consecutive month while the equivalent UK index dropped to its lowest level since May.
The data underscored the darkening outlook for European economies, which are likely to shrink again because of renewed lockdowns following recessions in the first half of 2020 when the pandemic took hold.
It also triggered a sell-off in equity markets with the Stoxx Europe 600 index falling 1.1 per cent and the FTSE 100 dropping 0.7 per cent in morning trading.
The IHS Markit flash composite purchasing managers’ index for the eurozone, a widely-watched indicator, dropped 1.6 points to 47.5 in January, staying below the 50 threshold that separates expansion and contraction.
“A double-dip recession for the eurozone economy is looking increasingly inevitable as tighter Covid-19 restrictions took a further toll on businesses in January,” said Chris Williamson, chief business economist at IHS Markit.
The prospects for the eurozone economy have worsened since several countries including Germany and the Netherlands tightened lockdowns in recent weeks in response to a resurgence of the virus.
In the UK, the flash IHS Markit/Cips composite purchasing managers’ index fell to 40.6 in January, the lowest reading in eight months and well below the 45.5 level forecast by economists polled by Reuters. It was also the third consecutive reading below 50.
Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said the January PMI figures “provide more evidence that the current lockdown has damaged the economy more than November’s light-touch variety”.
He warned that since the PMI excludes activity in the retail and public sectors, the closure of schools and the cancellation of non-Covid-19 work by hospitals “will additionally depress GDP”.
Economists also said the disruption to UK trade after the end of the post-Brexit transition period on December 31 and wider problems at ports weighed on activity.
The data highlighted the pandemic’s two-speed economic impact as the services sector in both the UK and the eurozone was hit much harder by the fresh virus curbs than manufacturing.
The UK purchasing managers’ index for services fell to 38.8 in January compared with 49.4 in December. The downturn dragged the composite index lower because services — which include pubs and restaurants shut because of Covid-19 — account for about 80 per cent of the UK economy.
In the eurozone the services sector PMI fell 1.4 points to 45 in January, but the manufacturing PMI dropped less than expected to 54.7, down from 55.2 in the previous month but still in expansionary territory.
Sentiment about future prospects “cooled…
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