The UK is heading for a 0.4% contraction in the third quarter according to the first post-Brexit snapshot of business activity.
A flash estimate from the closely-watched Markit purchasing managers’ index (PMI) for July pointed to the worst performance for more than seven years – when the economy was in the depth of recession.
The pound, already trading at 31-year lows against the US dollar, fell by a cent on the figures. The figures will add to pressure on the Bank of England to cut interest rates next month to cushion the economy from the Brexit blow.
Markit chief economist Chris Williamson said: “July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early 2009.”
He said the downturn – seen in order cancellations, a lack of new orders and the postponement or halting of projects – was “most commonly attributed in one way or another to Brexit”.
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The survey gave a reading of 47.7 for business activity across the economy – where the 50 figure separates growth from contraction. It was down from 52.4 in June.
Manufacturing was at a 41-month low of 49.1 while the services sector reading of 47.4 was its worst for 88 months.
A slump in services is particularly significant as the sprawling sector – which ranges from law firms and accountancy to bars and restaurants – represents about four-fifths of economic output.
The sector also saw a record slump in expectations. Mr Williamson said it suggested there was “more pain to come in the short term at least”.
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Mr Williamson said: “At this level, the survey is signalling a 0.4% contraction of the economy in the third quarter, though much of course depends on whether we see a further deterioration in August or if July represents a shock-induced nadir.”
Mr Williamson said the figures provided “a powerful argument for swift action” from the Bank of England as it weighs up whether to cut interest rates next month.