The economy’s recovery ran out of steam in October with the rebound in the services industry slowing sharply even before the new lockdown was announced.
It raises the prospect of a double-dip recession as the new restrictions kick in tomorrow, closing down much social activity and a large proportion of businesses that rely on face-to-face contact.
The influential purchasing managers index (PMI) survey from IHS Markit fell to 51.4 for the services sector last month, down from 56.1 in September.
Any score of above 50 indicates growth, so this suggests a sharp slowdown in the pace of expansion. It is the weakest score since June, when the index was still pointing to a contraction in private sector activity.
Businesses kept on growing as they reopened and relaunched projects that had been closed in the first lockdown, and companies linked to the housing market performed particularly strongly due to booming sales.
But the level of new orders fell, indicating demand is waning as new restrictions were brought in through the month.
Hospitality businesses in particular suffered from increasing limits under the tiering system, stopping customers meeting indoors with people from outside their household in several parts of the country.
Companies are reluctant to take on workers, with the survey indicating the eighth consecutive month of falling employment.
Firms cut prices in an effort to get more customers through the doors, even as the cost of their supplies rose, indicating margins are being squeezed.
"The UK service sector was close to stalling even before the announcement of lockdown 2 in England, with tighter restrictions on hospitality, travel and leisure leading to a slump in demand for consumer-facing businesses," said Tim Moore, economics director at IHS Markit.
"This was only partly offset by sustained expansion in areas related to digital services, business-to-business sales and housing market transactions.
"November's lockdown in England and a worsening Covid-19 situation across the rest of Europe means that the UK economy seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021."
It means the economy is facing another slide long before it can get close to recovering all of the ground lost in the first lockdown.
“We provisionally judge that GDP in November will be 14pc below its pre-Covid January peak. That would be a better outcome than the 17pc shortfall in June, towards the end of the first lockdown, as schools will remain open, manufacturing and construction businesses should be disrupted less this time, and non-consumer facing services businesses will have adapted to lockdown conditions, but it still represents a painful loss of output,” said Samuel Tombs at Pantheon Macroeconomics.
“Then in December, GDP probably will not recover fully to October's level, even though some activity and spending likely will be displaced from November.”
At the same time the French, Spanish, Italian and Irish economies all shrank in October, according to the composite PMIs, which combine the surveys of the services and manufacturing industries.
Only solid growth in Germany kept the eurozone from contracting, keeping the PMI for the currency bloc at 50, indicating no change in private sector activity overall.
The divide between manufacturing and services is even more stark on the continent, with services contracting even in Germany.