“This provides the clearest indication yet that the United Kingdom economy is suffering at the hands of last month’s referendum result”, said Joshua Mahony, Market Analyst at IG. It released the survey to provide clarity on the impact of the referendum, and it’s based on about 70 percent of usual replies.
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“Policymakers will be reassured by the resilience of the PMI in the immediate aftermath of the Brexit vote, but the fragility of the recovery leaves plenty of room for speculation about further stimulus later in the year”, said Chris Williamson, Chief Economist at Markit.
“Our first and immediate recommendation is for this uncertainty surrounding the terms of Brexit to be removed as quickly as possible so that we know the terms of trade and the ways in which the United Kingdom will continue to operate in the global economy”, she said in Beijing. “The data that we see over the next three months or so will be crucially important in shaping our response”, he told Sky News during a visit to China.
The outlook for global growth this year has held at 3.0 per cent, but was trimmed by 0.1 percentage point to 3.2 per cent for 2017, weaker than the 3.4 per cent forecast this week by the International Monetary Fund.
However Neil Wilson, analyst at ETX Capital, disagrees: ‘Quite simply, the United Kingdom economy contracted at the fastest pace since the start of 2009, when the global financial crisis plunged us into recession.
A major concern among businesses is the access Britain will have to the EU’s single market after leaving.
Markit’s flash composite Purchasing Managers’ Index (PMI), seen as a good growth indicator, dipped to 52.9 from June’s 53.1, the lowest reading since January 2015.
A departure from the European Union could mean companies based in Britain are cut off from the bloc’s single market, which guarantees no tariffs on trade and the free movement of workers and money. Economists polled by Reuters had expected a much smaller fall to 49.2.
Sterling fell 0.4 per cent against the U.S. dollar on publication of the report.
The evidence of a sharp drop in business activity across a broad swathe of Britain’s economy may alarm the Bank of England, which is trying to decide how aggressively to act at its August policy meeting to cushion the shock of the referendum vote.
The collapse in the British pound following the Brexit vote had meanwhile pushed up manufacturers’ costs.
Economists said the “reset” Hammond had in mind may resemble the fiscal rule adopted by his Osborne in 2010 when he aimed to balance the public finances within five years, excluding investment spending and taking into account where Britain was within the economic cycle.
The decline in the composite index from June, when manufacturing and services were both indicating expansion, was the sharpest on record, Markit said.
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The flash United Kingdom manufacturing PMI output index also dropped from 52.9 to 49.1 over the period.
