Before becoming Prime Minister, Theresa May had said that the government would no longer seek to reach a surplus by 2020. He told journalists: “The PMI data is a measure of sentiment, it’s not a measure of any hard activity in the economy”.
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Speaking at a meeting of business leaders in Beijing, the Chancellor signalled he may have to throw out George Osborne’s plans for cutting the deficit in the Autumn Statement, expected towards the end of the year.
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.
Mr Hammond is attending his first meeting as chancellor with the G20 finance ministers which is taking place in Chengdu.
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 Brexit.
The optimistic outlook is in line with comments made by the president of the European Central Bank (ECB), Mario Draghi, who said on Thursday that Europe’s financial markets had “weathered” the uncertainty caused by the vote.
Britain’s economy appears to be shrinking at its fastest pace since the global financial crisis as a result of the vote to leave the European Union, but the rest of the region is holding up, surveys showed Friday. It was not something that markets or businesses were expecting.
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.
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 it needs to act to cushion the shock of the referendum vote.
“A number of firms linked this to ongoing uncertainty pre- and post-EU referendum, with reports especially prevalent among service providers”, added Markit in a statement.
After announcing the results of referendum on June 24, the GBP fell to its lowest level against United States dollars since 1985, reaching 1.28. The pound sharply fell on the prospect, to $1.3090 from $1.3280 earlier in the day.
The British economy is getting smaller, according to a major survey of business executives in the country. “Taken literally it would imply a period of contraction in the economy”, Investec analyst Philip Shaw said.
“What will start to reduce uncertainty is when we are able to set out more clearly the kind of arrangement we envisage going forward with the European Union”, Hammond said. He says the UK’s fiscal policy may need to be “reset”, depending on what happens.
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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.
