He said that the survey signalled a 0.4% contraction in the economy during the third quarter, though much of this depends on whether there is a further deterioration in August or if July represents a “shock-induced nadir”.
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Stephen Brown at Capital Economics said the PMI report “suggests that the real economy has generally shrugged off the financial market volatility that followed the UK’s Brexit vote, but remains sluggish”.
The composite PMI dropped to 47.7 in July from 52.4 in June, index compiler Markit said, the sharpest on-month drop on record and marking an 87-month low. The index reached its highest level in 2016 so far with both manufacturers and service providers reporting stronger expansions.
The purchasing managers index (PMI) – a measure of orders, output, exports, and more – is created to provide a “snapshot” of how businesses are performing. Economists had expected a reading of 48.7.
Williamson was cautious about calling this the beginning of a stronger upturn, but still felt that data was encouraging after the second quarter showed the sector’s worst performance in over six years.
“The downside of the exchange rate was a steep rise in manufacturers’ input prices, mainly due to higher import costs”, wrote IHS Market in the data release. As the global economy is now subdued, economists wonder whether our export surge will be long-lasting.
Data provided by the consulting firm IHS Markit, showed that the British economy had dropped to levels similar to those seven years ago when financial sectors suffered the aftermath of the global financial crisis of 2007-08, Efe news reported.
In an immediate reaction, EUR/USD was trading at 1.1016 from around 1.1019 ahead of the release of the data, GBP/USD was at 1.3088 from 1.3101 earlier, while USD/JPY was at 105.92, compared to the prior 105.97.
But on equities markets, the FTSE 100 index climbed back into positive territory on hopes that the weaker pound might be beneficial for the earnings of some of the worldwide companies listed on the index.
The Bank of England, the U.K.’s central bank, also lowered regulations on British banks earlier this month to spur greater lending.
Investec economist Chris Hare said: “Our view remains that post-Brexit uncertainty will see the United Kingdom flirting heavily with a recession”.
He 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.
“The readings suggest we are heading for a recession again and it is nearly certain the Bank of England will pull the trigger on aggressive stimulus to boost aggregate demand”, said ETX Capital analyst Neil Wilson.
‘These PMIs are truly abysmal and exactly what Mark Carney needs to raid the monetary policy cupboard for everything that’s left.
Kallum Pickering, senior United Kingdom economist at Berenberg, said: “The PMI data for July released today point to a sharp drop in economic activity”.
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A separate report also shows a potential pickup for the relatively slow-growing US economy. They’re not sure, they’re in a period of uncertainty now.
