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Recession fears as economy slides

The UK economy has suffered a ‘dramatic deterioration’, sliding at its fastest rate since the last financial crisis in the wake of Britain’s vote to leave the European Union, a survey showed on 22 July.

A ‘flash’ reading (estimate) of the composite purchasing manager’s index (PMI) compiled by data firm IHS Markit showed the index at its lowest level since April 2009. It fell to 47.7 in July, compared to 52.4 in June.  A reading above 50 indicates growth.

The PMI is an indicator of the economic health of the manufacturing sector. It is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

This report was based on a survey of purchasing executives at 600 manufacturing companies and more than 650 services firms collected between July 12 and 21.

Chris Williamson, chief economist at IHS Markit, said the update showed the UK economy is on course to contract by 0.4 percent in the third quarter.

He added: ‘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.’

Mr Williamson said: ‘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 represents a shock-induced nadir.

A recession is technically defined as two consecutive quarters of negative growth, which shows the economy is shrinking.

Markit found 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.

 

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