UK services sector contracts sharply after Brexit vote

The UK services industry contracted sharply in July following the vote to leave the European Union.

The final Markit/CIPS services purchasing managers’ index fell to 47.4 from 52.3 in June, in line with the flash estimate. This marked the first contraction since December 2012 and the strongest rate of decline since March 2009. A reading below 50 indicates contraction.

Markit said companies widely reported that the outcome of the EU referendum had weighed on new business inflows during the month.

Chris Williamson, chief economist at Markit, said: “The marked service sector downturn follows news from sister PMI surveys showing construction activity suffering its steepest decline since mid- 2009 and manufacturing output contracting at the fastest rate since late-2012. At these levels, the PMI data are collectively signalling a 0.4% quarterly rate of decline of GDP.

“It’s too early to say if the surveys will remain in such weak territory in coming months, leaving substantial uncertainty over the extent of any potential downturn. However, the unprecedented month-on-month drop in the all-sector index has undoubtedly increased the chances of the UK sliding into at least a mild recession.”

David Morrison, senior market strategist at SpreadCo, said: “This was the last piece of major UK data ahead on tomorrow’s Bank of England rate decision. It provides more evidence (if any were needed) that the Bank will want to ease monetary policy further with the consensus view that it will cut its headline Bank Rate by 25 basis points.

“There’s also an expectation that the Bank will restart its asset purchases. However, there are a range of views here with estimates for additional stimulus ranging from £50 -175bn.”