Marked deterioration in UK composite PMI to bolster MPC easing appetite

Markit's purchasing managers' indices showed Britain's economy appears to be shrinking at the fastest rate since the financial crisis in the wake of last month's Brexit vote. Markit/CIPS purchasing managers’ findings show activity plunged in the weeks following vote to leave EU. It was one of the first PMI readings to have responses taken after the U.K. voted to leave the European Union on June 23.

The July reading fell to 49.1 from 52.1 in July, a 41-month low. Economists were expecting a reading of 48.7. The flash services PMI index was at 47.4, down from 52.3 in June, against a forecast of 48.8. U.K. PMI composite index, with readings from manufacturing and service, fell to 47.7 in July from 52.4 in June; a reading of 49 had been forecast.

"The survey is signaling a 0.4% contraction of the economy in the third quarter, Williamson said. "Given the record slump in service sector business expectation, the suggestion is that there is further pain to come in the short-term at least," said Markit chief economist Chris Williamson said in a statement.

Bank of England (BoE) unexpectedly held bank rate at record low level of 0.5 percent on Thursday. It also kept the asset purchase programme unchanged at GBP 375 billion. However, the BoE has hinted additional stimulus in August to support the post-Brexit economy.

"The MPC will want to see some corroboration from other activity indicators in deciding the ultimate scale of the stimulus they are considering for the economy, rather than basing monetary policy purely on one set of ‘flash’ PMIs. But the stark weakness of today’s report will even weigh on the deliberations of MPC members like Martin Weale and Kristin Forbes who have only this week cautioned against expectations of a rapid easing of monetary policy," said Lloyds Bank in a report.