The UK’s decision to leave the European Union inflicted an immediate blow on the economy as business activity shrank at its fastest pace since the last recession seven years ago.
In the weeks following Brexit, there was a “dramatic deterioration,” Markit Economics said in a one-time report published Friday. Services and manufacturing shrank and a gauge of the private-sector economy plunged to 47.7, well below the 50 level that divides expansion from contraction.
The slump is the strongest evidence yet that politics is propelling the world’s fifth largest economy into recession. It intensifies pressure on the Bank of England to deliver fresh monetary stimulus and on the government to reverse fiscal austerity. The pound dropped after the report was published, with Markit saying its latest readings put the economy on course to contract by 0.4 per cent this quarter.
“July’s PMI certainly points to more easing,” said Samuel Tombs, an economist at Pantheon Macroeconomics in London. “We’ve seen a variety of business measures fall to levels not seen since the financial crisis. Although consumer confidence might hold up for the next few months, businesses are putting the brakes on investment.”
A gauge of services, the biggest part of the economy, dropped to 47.4. The slide in the composite Purchasing Managers’ Index was sharper than economists had predicted and was the biggest drop on record. It’s now at the lowest since April 2009, when the global financial crisis had helped push the UK into five straight quarters of contraction, and then Prime Minister Gordon Brown said an “international hurricane” was battering the world economy.