Many analysts now believe that the UK economy is shrinking, following Friday’s release of the broadest survey of business activity and confidence since last month's Referendum. The preliminary, Markit survey of purchasing managers, executives who make spending decisions at 1,250 big firms fell by the most in its 20-year history. It was consistent with an economy contracting 0.4 percent in the third quarter, contrasting with an actual reading of plus 0.4 percent in the first quarter. The Bank of England has been clear that easing monetary policy before the end of 2016 may be necessary.
The Markit PMIs, which give an early indication of how gross domestic product is likely to perform, suggest the 1.8 trillion pound UK economy is shrinking faster than at any time since the aftermath of the global financial crisis. It showed the services sector - one of the few British growth drivers - has been hit especially hard by Brexit, with orders plunging and confidence crumbling. The PMI for the services sector fell to 47.4 in July from 52.3 in June, the steepest drop since records began in 1996 and the worst reading since March 2009, around the low point of the global economic recession
The slump is the strongest evidence yet that the vote to move out of Europe is dragging the world’s fifth largest economy into recession. It intensifies pressure on the Bank of England to deliver fresh monetary stimulus and on the government to reverse fiscal austerity.
The US Federal Reserve is almost certainly due to keep interest rates on hold on Wednesday, although the next move is still seen to be a rate increase. The US economy moves into the third quarter of the year on a positive note, with solid growth rates and general improved conditions. With the election looming nearer, the Fed is unlikely to act before December.