UK economy contraction post Brexit ‘steepest since financial crisis’

22 July 2016

The UK economy has contracted at its “steepest pace” since the financial crisis after last month’s vote to leave the EU, a flash poll of buyers has found.

The IHS Markit/CIPS UK Purchasing Managers Indexes are monthly cross-sector polls of buyers designed to gauge the temperature of the economy. This flash poll, conducted between 12 and 21 July, was held to measure the impact of the Brexit vote. 

The poll found:

  • The UK PMI Composite Output Index, a weighted average of manufacturing output and services business activity, fell to 47.7, down from 52.4 in June. This is a seven-year low.
  • The UK Services PMI Activity Index fell to 47.4, down from 52.3 in June, another seven-year low.
  • The UK Manufacturing PMI fell to 49.1, down from 52.1 in June, a three-year low.

An index value under 50 indicates a contraction, a value above shows growth.

Business activity had fallen “at the fastest rate since the height of the global financial crisis in early-2009,” said Chris Williamson, chief economist at Markit.

“At this level, the survey is signalling a 0.4% contraction of the economy in the quarter… Given the record slump in service sector business expectation, the suggestion is that there is further pain to come in the short-term at least,” he said.

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 to Brexit in the poll, said Williamson.

Andrew Coulcher, group business solutions director, CIPS, told BBC Radio 5 Live: “Our view is that the sooner the government and the Bank of England can help restore some confidence in the economy, we will start to see things improve from the purchasing managers point of view.”

In the meantime the procurement community needs to step up and help put some calm back into the way businesses are thinking about the future”, Coulcher said.

“Supply chain managers must use this uncertainty to demonstrate what they do best – being agile, adaptive, sourcing the best goods and prices to steer their organisations successfully in the months and years ahead,” said David Noble, group CEO, CIPS. 

“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,” he said.

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