UK Facing Recession Threat After Brexit Vote

Britain faces the threat of a Brexit-driven recession, experts have warned, after the first snapshot of business activity since the vote showed it had been knocked sharply off course by the result.

Figures from the closely-watched Markit purchasing managers' index (PMI) indicated the economy had been plunged into its steepest downturn since the height of the financial crisis in early 2009.

Chancellor Philip Hammond signalled he could ease George Osborne's austerity policy to cushion the economic blow if more evidence emerges of a downturn.

He said: "Over the medium term we will have the opportunity with our Autumn Statement to reset fiscal policy if we deem it necessary to do so in light of data in the coming months."

The new figures will also add to pressure on the Bank of England to cut interest rates further next month from their record low of 0.5%.

Sterling, already trading at 31-year lows against the US dollar, slipped by more than a cent to less than $1.31.

The PMI flash estimate for July suggested that the UK was heading for a contraction of 0.4% in the third quarter of 2016, the first fall in gross domestic product (GDP) since 2012.

A recession is defined as two quarters in a row of contraction - last seen in Britain during the financial crisis of 2008-2009.

The survey gave a reading of 47.7 for business activity across the economy - where the 50 figure separates growth from contraction. It was down from 52.4 in June.

Both the manufacturing and services sectors shrank, according to the figures, which were worse than expected, though exports were bolstered by the fall in the pound, which makes UK goods cheaper for foreign buyers.

Markit chief economist Chris Williamson said: "July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early 2009."

He said the downturn - seen in order cancellations, a lack of new orders and the postponement or halting of projects - was "most commonly attributed in one way or another to Brexit".

Kallum Pickering, senior UK economist at Berenberg, said: "The PMI data for July released today point to a sharp drop in economic activity.

"The risk of a recession in [the second half of] 2016 is significant."

The figures come after the International Monetary Fund slashed its growth forecasts for the UK, saying the Brexit vote had thrown a "spanner in the works" of the global economy.

But the PMI data marks a contrast with a report from the Bank of England earlier this week suggesting that while the referendum result had increased uncertainty, there had been as yet "no clear evidence of a sharp slowing in activity".