Britain’s economy was battered by the Brexit vote last month and faced a “dramatic deterioration” in activity as orders dried up and business investments were canned, key data showed today. The grim news — the first indication of economic contraction since Britain’s shock EU exit vote — was revealed at the end of a week in which Prime Minister Theresa May toured France and Germany to soothe Brexit jitters. Private sector business activity, as measured by research group Markit’s Purchasing Managers Index (PMI), sank in July to 47.7 points. It was the lowest level since April 2009 following the global financial crisis, and sparked predictions from some quarters of a painful recession.
The preliminary reading compared with 52.4 in June and crucially took the PMI below the boom-or-bust 50 points barrier that signals contraction, Markit said. “Our economy has suffered a shock from the referendum vote… that has had an impact on confidence,” Britain’s new finance minister Philip Hammond said in an interview broadcast on Sky News. “Our job is to try and restore as much certainty as we can as quickly as we can,” he said. The survey — regarded as a key early indicator of economic activity before official statistics are published — comes after Britons voted to leave the European Union in a crunch referendum on June 23.
“July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early-2009,” said Markit chief economist Chris Williamson. “The downturn, whether manifesting itself in order book cancellations, a lack of new orders or the postponement or halting of projects, was most commonly attributed in one way or another to Brexit.” Markit said the survey signalled a 0.4-per cent contraction in the British economy in the third quarter or three months to September.
“Much of course depends on whether we see a further deterioration in August or if July represents a shock-induced nadir,” Williamson added. “Given the record slump in service sector business expectations, the suggestion is that there is further pain to come in the short-term at least.” The sharp contraction was triggered by falling output and orders for the first time since the end of 2012, while business optimism in the services sector hit a seven-and-a-half-year low.