UK economic activity shrinks in July at sharpest pace since early 2009

The flash composite PMI of UK for the month of July dropped to 47.7 from June’s 52.4. This is the weakest reading since April 2009. Services sector output in the UK saw the steepest fall, with the index dropping to 47.4, an 88-month low. Meanwhile, manufacturing index eased to a 41-month low of 49.1. Manufacturing PMI in June was 52.1.

The one-off ‘flash’ surveys give an early insight into the post referendum scenario from a dependable and long-running indicator of the UK economic activity, noted Lloyds Bank in a research report. The steep declines were recorded despite indications of political stabilization and the improved global equity market sentiment in the period, added Lloyds Bank.

“While sentiment may yet stabilise over the coming months, the marked deterioration in the headline activity readings is also borne out in the forward-looking business expectations for the service sector, which historically have had a closer mapping with official services sector output measures”, said Lloyds Bank.

The BoE’s MPC would intend to see certain corroboration from other activity indicators while deciding the scale of stimulus that are considering for the economy. However, the sharp weakness of the report released today would weigh on the talks of MPC members such as Kristin Forbes and Martin Weale, who have warned against expectations of a quick easing of monetary policy, according to Lloyds Bank.

“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.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’. At this level, the survey is signalling a 0.4 percent contraction of the economy in the third quarter, though much of course depends on whether we see a further deterioration in August or if July,” said Markit Chief Economist Chris Williamson.