UK economy facing ‘heightened risk of recession’

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The UK’s economy may have tipped into recession following a downturn in the dominant service sector, according to closely-watched figures.

The IHS Markit/CPS purchasing managers’ index for services  fell to a six-month low of 49.5 in September. The 50 level divides growth from expansion.

It suggests the economy shrank 0.1% in the three months to September, after a 0.2% fall in the previous quarter.

Some experts urged caution, as official data last month eased recession fears.

Combined with even weaker manufacturing and construction purchasing managers’ indexes (PMI) earlier this week, September’s all-sector PMI sank to 48.8 from 49.7. This was its lowest since the month after the referendum decision to leave the EU in June 2016, and before that 2009.

“Coming on the heels of a decline in the second quarter, [this] would mean the UK is facing a heightened risk of recession,” said IHS Markit economist Chris Williamson. A recession is normally defined as when an economy contracts over two consecutive quarters.

“September’s decline is all the more ominous, being the result of an insidious weakening of demand over the past year rather than a sudden shock,” Mr Williamson added. He highlighted Brexit uncertainty, worries about trade tensions between the US, China and Europe, and weaker growth in the eurozone.

Separate PMI figures on Thursday showed Germany’s services sector sharply lost momentum in September, fuelling fears that contraction in the country’s manufacturing sector was spilling over into the rest of Europe’s largest economy. Germany’s services PMI fell to 51.4 from 54.8 in August, the lowest reading for three years.

Although the PMI data is closely followed it is not considered foolproof. Immediately after the Brexit referendum, the data indicated a sharper downturn than was actually the case.

Last month, latest figures from the Office for National Statistics (ONS) pointed to the UK economy growing faster than expected in July, easing fears that it could fall into recession.

Growth was flat over the three months to July, but this was an improvement on the 0.2% contraction seen in the April-to-June quarter. ONS growth data for August is due for publication on 10 October.

This survey has sounded the recession alarm bells – pointing to a second quarter of shrinking GDP. Not only does it imply one of the biggest slumps in activity in the dominant service sector since the financial crisis but, taken with its counterparts for manufacturing and construction, signals output falling across the economy.

Should we be worried? These surveys are the first monthly insight into the health of major parts of our economy. But in these tumultuous times, they may be more of a mood check rather than a whole-body MOT.

The authors refer to Brexit-related anxiety: sentiment, rather than activity, may be clouding or obscuring the picture. It wouldn’t be the first time. Earlier this year (because of course we’ve been here before) these surveys failed to fully reflect the flurry in Brexit preparations. Nor do they cover retail or the public sector – two areas that have underpinned the growth we have seen. The surveys can and do deviate from official growth numbers.

But it’d be dangerous to ignore the warnings. Sentiment can dictate all sorts of business plans – from investment to hiring. The impact of those can last longer than one quarter’s GDP.

‘Too downbeat’

Economists said Thursday’s PMI figures were a warning. Ruth Gregory, senior UK economist at Capital Economics, said they reignited concerns the economy is in recession as it “suggests that growth in the biggest part of the economy has fizzled out”.

However, while Dean Turner, UK economist for UBS Global Wealth Management, said the figures were “gloomy”, he added that the PMIs “have had a tendency to overreact relative to reality. It is too early to conclude that the UK is heading for a recession on these numbers alone.”

And Samuel Tombs, chief UK economist at Pantheon Macroeconomics, went further. “The survey’s poor track record recently means its recession signal should not be believed,” he said. “Markit’s services survey has been far too downbeat over the last year.”

Nathan Ake
Eight of Nathan Ake’s 11 Premier League goals have been scored from corners

Bournemouth survived a second-half fightback from Southampton to secure a fully deserved win at St Mary’s and move into third place in the Premier League before the weekend’s games.

Eddie Howe’s side produced a superb first-half display to establish a two-goal lead as Nathan Ake headed in Diego Rico’s corner in the 10th minute and Harry Wilson’s sweeping finish from Phillip Billing’s pass crowned a superb move.

The Cherries also had a goal from Joshua King ruled out for offside by the video assistant referee as they were in complete control for the first 45 minutes.

Southampton snatched at a lifeline when James Ward-Prowse scored from the spot eight minutes after the break following Steve Cook’s clumsy challenge on Che Adams.

Saudi Arabia to open up to foreign tourists with new visas

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Man stands outside of the Qasr al-Farid tomb in Madain Saleh, a UNESCO World Heritage site, near the town of al-Ula in Saudi Arabia

On Friday, the kingdom will launch a visa regime for 49 countries and relax strict dress codes for female visitors.

Tourism Minister Ahmad al-Khateeb described it as a “historic moment” for the country.

Visas have until now largely been restricted to pilgrims, business people and expatriate workers.

Saudi Arabia is also hoping to secure foreign investment in the tourism industry. It wants tourism to rise from 3% to 10% of gross domestic product by 2030.

“Visitors will be surprised… by the treasures we have to share – five Unesco World Heritage Sites, a vibrant local culture and breathtaking natural beauty,” Mr Khateeb said.

Foreign women visitors will not be required to wear the body-covering abaya robe required to be worn in public by Saudi women, but must still dress modestly. There will also be no restrictions on unaccompanied women visiting the country.

Saudi Arabia reforms: Are they good news for women?

“We have a culture. We believe our friends and our guests will respect the culture, but definitely it is modest and it will be very clear,” Mr Khateeb said.

Non-Muslims will still not be allowed to visit the holy cities of Mecca and Medina and the ban on alcohol will be maintained.

More details on the scheme, including which countries are eligible, are due to be provided later on Friday.

But Mr Khateeb said he did not believe the recent attack on Saudi Arabia’s oil industry would put people off visiting.

“Our cities are among the most safest cities globally. Therefore, we don’t believe at all it will impact our plans. We have all the expats living in Saudi Arabia, enjoying Saudi Arabia. We’re very secure,” he said.

The moves to open up tourism is central to Crown Prince Mohammed bin Salman’s wider economic reform programme that aims to reduce the kingdom’s focus on oil.

Under the plan, Saudi Arabia wants to increase international and domestic visits to 100 million a year by 2030. The government expects to create one million tourism jobs.

Still, the push comes as the kingdom faces a tarnished international image amid criticism of its human rights record following last year’s murder of journalist Jamal Khashoggi, and a recent crackdown on women’s rights activists.

In 2017 Saudi Arabia announced a massive tourism development project that will turn 50 islands and other sites on the Red Sea into luxury resorts.

Last year construction began on Qiddiya “entertainment city” near Riyadh, which is to include high-end theme parks, motor sport facilities and a safari area.

This is not the first time Saudi Arabia has opened its doors to tourism. In the summer of 2000 it hired French Alpine instructors from Chamonix to take visitors rock-climbing and paragliding in the mountainous southwestern province of Asir. I jumped off a cliff with one of them in a tandem flight that had us soaring on thermals for 45 minutes, hundreds of feet above juniper forests where wild Hamadryas baboons foraged amongst the rocks.

But everything came to a grinding halt one year later after the 9/11 terrorist attacks involving, amongst others, 15 Saudi nationals.

Since then, domestic and religious tourism have continued apace. Up to three million Muslims come to the holy cities of Mecca and Medina each year to make the Hajj pilgrimage.

With the country’s hot, arid climate, a lot of Saudis like to get away to the over-developed Red Sea coast or to the cool, verdant mountains of Asir. The views here are simply stunning. But it is still Saudi Arabia, so don’t expect cocktails at sundown!

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