Brexit causes sharp decline in PMI data

The decision in June for Britain to leave the EU has resulted in a "dramatic deterioration" in economic activity, not seen since the weeks following the global financial crisis.

IHS Markit's Purchasing Managers' Index (PMI) was released on 22nd July and shows a dramatic fall to 47.7 in July, the lowest level since April in 2009. Any reading on the index which is below 50 indicates market contraction.

Both of the key sectors of manufacturing and service experienced a decline in both output and orders. However, as expected, exports increased, driven by the weakening of the pound.

The report surveys more than 650 services companies monthly, from sectors including business services, computing, transport and restaurants. The survey specifically asks the businesses: "Is the level of business activity at your company higher, the same or lower than one month ago?" It also asked manufacturing businesses whether production had increased or decreased in the previous month.

The PMI release is the first significant set of economic data measuring business reaction to the result of the UK referendum. Chris Williamson, chief economist at IHS Markit, said the downturn had been "most commonly attributed in one way or another to 'Brexit'."

He added that the economy could contract by 0.4% in the third quarter of this year, but that would depend on whether the current slump continued.

"The only other times we have seen this index fall to these low levels, was the global financial crisis in 2008/9, the bursting of the dot com bubble, and the 1998 Asian financial crisis," Mr Williamson told the BBC. The difference this time is that it is entirely home-grown, which suggest the impact could be greater on the UK economy than before. This is exactly what most economists were saying would happen."

A sub-section of the PMI figures, shows that service businesses, including insurance and advertising, are feeling less positive about the future than at any time since the height of the recession.

Download the full release and report here.

Source: Insight  DIY Team

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