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UK economy slumps ‘at fastest rate since financial crisis’ after Brexit vote

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The UK economy has slumped at its fastest rate since the financial crisis in the wake of Britain’s vote to leave the European Union, a report said.

The closely-watched Markit Flash UK Composite Output Index plummeted to its lowest level since April 2009, falling to 47.7 in July.

A reading above 50 indicates growth.

The sharp contraction was triggered by falling output and orders for the first time since the end of 2012, while business optimism in Britain’s powerhouse services sector hit a seven-and-a-half-year low.

The data, collected between July 12 and 21, provides a stark picture of the state of the economy following the Brexit vote.

Chris Williamson, chief economist at Markit, said the update showed a “dramatic deterioration” in the UK economy, which is on course to contract by 0.4% in the third quarter.

“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’.”

He added: “At this level, the survey is signalling a 0.4% 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 represents a shock-induced nadir.

“Given the record slump in service sector business expectations, the suggestion is that there is further pain to come in the short-term at least.”

The update comes after the Bank of England said on Wednesday that business uncertainty had ”risen markedly” since the Brexit vote – but there was ”no clear evidence” of a sharp economic slowdown.

Sterling was down 0.2% against the dollar at 1.318 US dollars after the report was published, while the pound also fell 0.3% against the euro at 1.195 euro.

The study found that its flash UK services PMI hit an 88-month low of 47.4 this month, compared to 52.3 in June.

The flash UK manufacturing PMI was also in the doldrums, slipping to a 41-month low of 49.1 in July after a reading of 52.1 the month before.

The flash UK manufacturing PMI output index also dropped from 52.9 to 49.1 over the period.

The report said the downturn in the services sector was “more marked” than in manufacturing, with services activity and new orders dropping at their quickest rate for seven years.

But while output and new orders also came under pressure in the manufacturing sector, its new export business rose for the second straight month, boosted in part by the sharp drop in sterling following the Brexit vote.

David Noble, group chief executive of the Chartered Institute of Procurement and Supply, said: “The UK economy has suffered sharp falls in output and new orders following the EU referendum as uncertainty has taken hold.

“The overall pace of decline was the strongest since early 2009.

“Weaker sterling has driven a steep rise in input prices for manufacturers but there is a glimmer of positivity with the new exchange rate encouraging a rise in export orders. However, with a subdued global economy, it is not yet clear whether these opportunities will materialise in the long term.”

He added: “The true extent of the impact of this uncertainty still remains to be seen next month. 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.”

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