Investing.com – Business activity in the U.K. contracted at the steepest pace since early-2009 in July, underlining concern over the health of the British economy in the wake of the decision to leave the European Union (EU), according to preliminary industry data released on Friday.
In a report, market research group Markit said that its flash U.K. manufacturing purchasing managers’ index PMI fell to a seasonally adjusted 49.1 in July from a reading of 52.1 in June.
Economists had forecast the index to fall to 47.8 in July.
Meanwhile, the services PMI dropped to 47.4 in July from a reading of 52.3 in June.
Analysts had expected the index to decline to 48.9 in July.
On the index, a reading above 50.0 indicates industry expansion, below indicates contraction.
Markit noted that the data showed that the third quarter had begun on weak footing as output and new orders both fell for the first time since the end of 2012 and service providers’ optimism over the coming 12 months slumped to a seven-and-a-half year low.
Commenting on the report, Chris Williamson, Chief Economist at Markit said, ““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.”
Williamson indicated that the only positive factor was the improvement in manufacturing export growth to its best in two years as the weak pound drove overseas sales.
According to his analysis, the data signaled a 0.4% contraction for the British economy in the third quarter, though he noted that it would depend on whether there was further deterioration in August or if July was simply a knee-jerk reaction.
“With policymakers 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,” Williamson concluded.
After the report, the pound extended losses GBP/USD was trading at 1.3193 from around 1.3274 ahead of the release of the data, while EUR/GBP was at 0.8363, compared to 0.8308 prior to the report.
Meanwhile, European stock markets were trading lower. London’s FTSE 100 lost 0.19%, the Euro Stoxx 50 gave up 0.29%, France's CAC 40 fell 0.25%, while Germany's DAX traded down 0.30%.