The composite purchasing managers’ index (PMI), a combination of manufacturing and services readings, dropped to 47.7 points in July from 52.4 – against a forecast of 49 – in the steepest decline since the height of the financial crisis in early 2009.
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The survey – regarded as a key early indicator of economic activity before official statistics are published – is the first major evidence of economic fallout after Britons voted to leave the European Union in a referendum on June 23.
United Kingdom services reached a 88-month low at 47.4, compared to 52.3 in June. A value under 50 indicates that private economic activity was contracting.
The headline figure has now been comfortably above the 50 line that separates growth from contraction for 39 months in a row.
The flash United Kingdom manufacturing PMI was also in the doldrums, slipping to a 41-month low of 49.1 in July, after a reading of 52.1 the month before.
“The only other times we have seen this index fall to these low levels, was the global financial crisis in 2008/9, the bursting of the dot-com bubble, and the 1998 Asian financial crisis”, Chris Williamson, chief economist at IHS Markit, told the BBC.
According to Markit, output and new orders fell in both the manufacturing and services sector during the month, but the downturn was more marked in services, where both measures fell at the quickest rates in over seven years.
The latest report from IHS Markit shows a contraction in the United Kingdom economy with the Purchasing Manager’s Index (PMI) at the lowest level since the financial crash in 2008/9.
The Markit PMI figures show services have been more badly affected than manufacturing post-Brexit.
Experts already expected a slight dip due to Brexit, and cautioned against reading too much into the data which could soon pick up once the dust settles and businesses digest the vote to Leave that took many by surprise.
But for manufacturers, there is one bright spot amid gloomy predictions: New exports have seen the largest increase in two years, according to Markit.
Zach Witton, the deputy chief economist at the manufacturers organisation EEF, said:”Manufacturing looks to be weathering the storm slightly better than the services sector, as manufacturers have seen somewhat of a boost in export orders following the depreciation in sterling”. But the pound’s fall also pushed up costs for energy and raw material at the fastest pace in five years.
“Indeed, the composite PMI is now at a level that points, on the basis of past experience, to the Bank of England Monetary Policy Committee cutting interest rates by 50bp”.
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The European Commission projected on Tuesday that the British GDP will surge by 1,3-to-1,6% in 2016; it projects 1.3% for 2017, down from a pre-Brexit 1.9% estimate.
