UK services sector sees output and new business drop in July

Figures from IHS Markit and CIPS show decline is at fastest rate since early 2009 and first for nearly four years as Brexit uncertainty continues

The month of July saw the UK services sector contract for the first time in three and a half years, with experts citing the uncertainty around Brexit as a main driver.

According to PMI (Purchasing Managers' Index) survey data from IHS Markit and CIPS, output and new business both declined and at the fastest rates since early 2009, with the Business Activity Index falling from 47.4 in July, compared with 52.3 in June.

In a double whammy it meant employment in the services sector stayed the same, marking the end of a 3.5-year period of uninterrupted job creation.

In addition, the volume of incoming new business dropped for the first time since the end of 2012, cited by the report as the fastest decline since early 2009 and again fuelled by uncertainty over the EU vote.

Chris Williams, chief economist at Markit, said: "It is too early to say if the surveys will remain in such weak territory in the coming months, leaving substantial uncertainty over the extent of any potential downturn. However, the unprecedented month-on-month drop in the all-sector index has undoubtedly increased the chances of the UK sliding into at least a mild recession.

"Service providers are certainly bracing themselves for worse to come with a record drop in business confidence about the year ahead, leaving optimism at its lowest ebb since February 2009."

David Noble, group chief executive at the Chartered Institute of Procurement and Supply, was slightly more optimistic.

"Any vestiges of hope were packaged up in the potential for new international business due to a weaker pound, and employment levels remaining steady. This may be scant consolidation if this Brexit hangover lasts much longer," he said.

"This dramatic drop in overall activity will be a reality check as much as it is unsettling, but it is just one month's worth of data and the next month will be more revealing."

In separate news, more doom was heaped on the economy after a leading think tank warned that the UK was "sailing blindly into a second global financial crisis".

A paper published by The Adam Smith Institute said the Bank of England's stress tests were weak and "undermined by a series of fatal flaws". It said every UK lender would fail the tougher tests set by the US Federal Reserve.