The so-called purchasing managers’ survey a gauge of business activity conducted by IHS Markit shows its composite output index fell to 47.7 points in July from 52.4 in June, an 87-month low.
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Eurozone business growth was at its slowest since the start of 2015 this month as a stronger performance in the two big economies of Germany and France was offset by weakness in smaller countries, a survey showed yesterday.
The flash services PMI for the United Kingdom slid to 47.4 from 52.3 in June, missing expectations of 49.2 and marking the lowest reading since March 2009.
Markit chief economist Chris Williamson attributed the fall to the vote in the United Kingdom to pull out of the European Union. The deal will also add exports from Papua New Guinea, where InterOil is largely focused.
Although export growth slowed from the six-month high in June, partly due to weakened sales to the United Kingdom, following “Brexit’ and the subsequent weakened pound.
Services activity and new orders both fell at the quickest rates in over seven years”.
When each of the risks, opportunities and uncertainties were taken into account, 58% of respondents said they would be reviewing their United Kingdom recruitment and 57% would be reviewing United Kingdom investment.
The survey is signaling a 0.4% contraction of the economy in the third quarter, Williamson said.
It wasn’t exactly a big surprise to see confidence in both sectors take a hit following the surprise Brexit vote but what was a concern was the size of the hit to the services sector, the main engine of growth for the United Kingdom economy.
“What it tells us is businesses confidence has been dented, they’re not sure, they’re in a period of uncertainty now”.
Chris Williamson, chief economist at Markit, called the plunge “a dramatic deterioration in the economy”.
On currency markets, after the report was published, the pound dropped over 1 per cent against the dollar to $1.3094.
“With policymakers waiting to see hard data on the state of the economy before considering more stimulus, the slump in the PMI will provide a powerful argument for swift action”, noted Williamson.
Brexiteers believe that the post-Brexit turmoil in the markets will be temporary – leading to a bright economic future for Britain in the long run. Yet the flip side is a spike in input costs as the weaker sterling is pushing up import prices.
Chris Saint, Senior Analyst, HL Currency Service, said: ‘There will be some hopes that sentiment can recover in the months ahead, particularly if the weaker pound gives United Kingdom manufacturers a helping hand, but this could be an important piece in the jigsaw for some Bank of England officials who are yet to be persuaded that additional stimulus is now needed’.
The index was 52.4 in June and a reading below 50 indicates activity is shrinking.
The weak pound, however, resulted in manufacturing export growth.
But he did suggest that the “confidence shock from the Leave vote might wear off over the coming months”.
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“One day’s PMI data does not the economy make”. The measure of expectations of future business for service companies – a key United Kingdom sector – dropped by more than 10 points in one month.
