Brexit vote wreaks havoc on UK economy

London - The UK economy saw a "dramatic deterioration" in the wake of the Brexit vote as business activity shrank at its fastest pace since the financial crisis, a survey found.

A Purchasing Managers’ Index combining flash estimates of services and manufacturing slumped to 47.7 in July, its lowest since April 2009 and below the 50 level dividing expansion from contraction, Markit Economics said in a one-time report published on Friday.

Economists in a Bloomberg survey had forecast a reading of 49. A gauge of services, the biggest part of the economy, dropped to 47.4.

The findings suggests Britain risks falling into a recession, with Markit saying its latest readings put the economy on course to contract by 0.4% in the third quarter.

The data, collected between July 12 and July 21, provide the strongest evidence yet of the economic damage last month’s shock vote to leave the European Union is inflicting and may clinch the argument in favour of renewed Bank of England stimulus.

While most Monetary Policy Committee members say that action is required in August, two of its nine officials have argued that they need further evidence of the impact Brexit is having.

"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," said Chris Williamson, chief economist at Markit.

"With policy makers waiting to see hard data on the state of the economy before considering more stimulus, the slump in the PMI will provide a powerful argument for swift action."

Record decline

The decline in the composite index from June, when manufacturing and services were both indicating expansion, was the sharpest on record, Markit said. Optimism among services firms also slumped at an unprecedented pace to the lowest in 7 1/2 years.

The services-activity index fell from 52.3 in June, while manufacturing dropped to 49.1 from 52.1, Markit said.

The report contained one bright spot as an index of new manufacturing exports rose to the greatest extent for almost two years, thanks to the sharp fall in the pound. But the exchange rate also led to a "steep rise" in input prices. Factories reported further job cuts.

BOE officials announce their next policy decision on August 4, when they will also publish new forecasts on growth and inflation.