Written by: Keith Tully
Reviewed: Friday 22nd July, 2016
Data relating to economic output and activity during July suggests that optimism and ordering levels among British businesses have both taken a steep downward turn in recent weeks.
In fact, the UK economy contracted this month at the sharpest pace since early 2009 and the aftermath of the global financial crisis, according to figures compiled by Markit as part of its purchasing managers index (PMI).
The figures represent a strikingly weak start to the third quarter of 2016 for the national economy and are being blamed largely on the uncertainty created by the result of Britain’s recent referendum on its membership of the European Union.
Markit has not recorded a fall in output and new order levels among UK businesses since 2012 but did so this month with its figures based on data collected between July 12th and 21st.
By the PMI measure, the headline figure for the UK’s economic output has not been lower since April 2009.
Service sector companies, which account for a large proportion of Britain’s economic activity, were more likely than other firms to report concerns about the prospect of the UK leaving the EU.
Meanwhile, manufacturers across the country have seen their import costs effectively increase in recent weeks as a result of the relative weakening of the British pound.
Chris Williamson, Markit’s chief economist, described the figures for July as reflecting a “dramatic deterioration” in the UK economy since the British public voted to leave the EU in late June.
“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’,” Williamson said.
“The true extent of the impact of this uncertainty still remains to be seen next month,” added David Noble chief executive of the Chartered Institute of Procurement & Supply.
“But with optimism in the UK’s service sector at a seven-and-a-half year low, policymakers must take swift action to stop further decline amid political upheaval.”
Markit projects that the UK economy will contract by as much as 0.4 per cent during the third quarter of the year if trends recorded during July were to persist throughout August and September.