Markit survey confirms fears of British recession on the horizon

Britain's decision to leave the EU inflicted an immediate blow on the economy as business activity shrank at its fastest pace since the last recession seven years ago.

In the weeks following Brexit, there was a "dramatic deterioration", Markit Economics said in a report published on Friday. Services and manufacturing shrank and a gauge of the private-sector economy plunged to 47.7, well below the 50 level that divides expansion from contraction.

The slump is the strongest evidence yet that politics is propelling the world's fifth-largest economy into recession. It intensifies pressure on the Bank of England (BoE) to deliver fresh monetary stimulus and on the government to reverse fiscal austerity. The pound dropped after the report was published, with Markit putting the economy on course to contract 0.4% this quarter.

"July's PMI certainly points to more easing," said Samuel Tombs, an economist at Pantheon Macroeconomics. "We've seen a variety of business measures fall to levels not seen since the financial crisis. Although consumer confidence might hold up for the next few months, businesses are putting the brakes on investment."

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A gauge of services, the biggest part of the economy, dropped to 47.4. The slide in the composite Purchasing Managers' Index was sharper than economists had predicted and the biggest drop on record.

It's now at the lowest since April 2009, when the global financial crisis had helped to push the UK into five straight quarters of contraction, and then prime minister Gordon Brown said an "international hurricane" was battering the world economy.

"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," said Chris Williamson, chief economist at Markit.

Markit collected data between July 12 and July 21. It released its latest survey to provide clarity on the impact of the referendum.

The report also raises questions about the impact on the international economy. The IMF downgraded its global growth forecast this week, and Group of 20 nations officials, who are meeting in China this weekend, are planning to say they're capable of dealing with the economic fallout of Brexit.

For BOE governor Mark Carney and fellow officials debating whether the UK economy needs more stimulus, a key question will be whether the signs of weakness will persist or just reflect an initial post-referendum shock. Williamson said the slump in the PMI "will provide a powerful argument for swift action".

Even with a weakening economy, the UK's political circumstances don't favour a reversal of the vote. Prime Minister Theresa May has ruled out repeating the referendum, adopting the catchphrase: "Brexit means Brexit."

Lawmakers in her Conservative Party are already warning they would be infuriated by any attempt to back away from that vow . Rows over Europe have helped to bring down every Tory prime minister since Margaret Thatcher.

Markit's report contained one bright spot as an index of new manufacturing exports rose the highest in almost two years, thanks to the sharp fall in the pound since the June 23 vote.