Bleak Q4 Numbers May Point to UK Recession Slide

Yesterday, a report we made alluded to a lack of productivity in the UK being a major factor in the nation's slow recovery from the recession. Today, a report  by CIPS (PDF) on the Purchasing Managers' Index (PMI) shows the first dip in activity in the last two years. The data leads experts to the conclusion that the UK economy actually shrank in 2012.

For those unaware, the service sector in the UK accounts for fully three quarters of the economy there. Now, despite economic growth on the heels of the London 2012 Olympic Games, it appears final quarter numbers may negate the 0.9 percent gains of Q3.

More significantly than a simple quarterly downward shift, this report points to a more potentially concerning aspect of the UK economy, a possible underlying weakness that could fuel a massive inflationary problem. The associated PMI of 48.9 is actually a beacon or red flag for economists that indicates a possible endemic shrinkage. While some experts suggest this shrinkage is  a natural contraction because of London 2012, others suggest deeper underlying causes.

Chris Williamson, Chief Economist at survey compilers Markit said this in the report from CIPS:

'The first fall in service sector activity for two years raises the likelihood that the UK economy is sliding back into recession. The services PMI follows an equally disappointing construction survey for December, leaving manufacturing ' which accounts for just 10% of the economy ' as the only bright spot. Taken together, composite data from the three surveys posted its worst quarterly performance for three-and-a-half years, and are consistent with the economy contracting by approximately 0.2% in Q4.'

According to those surveyed, the outlook for the coming year seems pretty bleak, and such factors as the backlog of work declining, these indicate further the potential for the UK to slide back into deep recession. David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply added this to cap off the report:

'This tentative outlook was underlined by reports of weak new business pipelines and budget restrictions in the final quarter of last year, to ensure that activity posted its weakest quarterly performance in 2012.'

With real estate, financing, and construction all tied in to a healthy GDP in the UK. Just the real estate services businesses there account for an estimated value of some  £175 billion. Financials from the two biggest players in the UK real estate game, British Land (headed by Chris Grigg at right) and Peel Group (Peel Holdings), these do not show a thriving real estate industry at all. In fact, some suggest were it not for public funds, Saudi, and other backing, companies such as Peel would be a lot closer to the belly up position right now.

The first GDP numbers estimates for Q4 of 2012 are due from the Office for National Statistics on January 24th.