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.
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Markit’s Purchasing Managers’ Index in manufacturing fell to 49.1 points during the seventh month of the year, down from the 52.1 in June, when it had rebounded from its second-lowest level in the past 15 months and booked a fresh five-month top. There are times when they give off false signals, predicting recessions that never materialise. The manufacturing PMI slumped 49.1 this month, a 41-month low, from 52.1 last month, and the services PMI index plummeted by the most on record to 47.4, the lowest since March 2009, from 52.3 in June.
“Headline PMIs picked up for Germany and France but the overall (euro zone) one fell and the rest of the region combined saw the weakest rise in activity since December 2012”, said Chris Williamson, chief economist at Markit.
Financial analysts were nearly unanimous in warning that Brexit would cause significant trouble for the United Kingdom economy, but the Leave campaigns led by Boris Johnson, Michael Gove, and Nigel Farage dismissed the warnings, instead claiming that “people in this country have had enough of experts”.
Mr Williamson added that the economy could contract by 0.4% in the third quarter of this year, but that would depend on whether the current slump continued. Manufacturing output and new orders both fell for the first times since the opening quarter of 2013.
The suddenly darker outlook in the United Kingdom, to be sure, should come as no surprise since business leaders largely favored staying within the European Union. “They’re not sure, they’re in a position of uncertainty now”, he said after meeting with Chinese policymakers in Beijing.
The data was published after the International Monetary Fund slashed its global and British economic growth forecasts for 2016 and 2017 earlier this week – and blamed uncertainty created by Brexit. We need action now.
It showed the services sector – one of the few British growth drivers – has been hit especially hard by Brexit, with orders plunging and confidence crumbling. It is possible that this is a “shock-induced nadir”, as the chief economist at the firm who conducted the survey put it, and that the economy will right itself in the coming months.
Conservative MP Michael Fabricant, a leading leave campaigner and a former economics spokesman for the party, said PMI was not necessarily a reflection of the state of the economy.
Historically, the PMI indicator is accurate and is consulted by the Bank of England when it decides on monetary policy; it appears that further monetary easing should be expected in the United Kingdom.
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“It is investment which is going to be the key determinant of how we get through this next period”.
