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UK Economy Falls at Steepest Level Since 2009, Pound Tumbles

By:
Peter Taberner

The UK economy has fallen to it lowest level for seven years, according to IHS Markit purchasing manager’s index (PMI) output index for July, in the first

UK economy declines

The UK economy has fallen to it lowest level for seven years, according to IHS Markit purchasing manager’s index (PMI) output index for July, in the first piece of nationwide data since the decision to leave the European Union.

The PMI placed the UK on 47.7, below the neutral level of 50, and way down on the 52.4 level that was recorded for June, output and new orders both fell for the first time since the end of 2012, by 4.7 and 6.8 points respectively, while service providers’ optimism about the coming 12 months slumped to a seven and-half year low.

Lower rates of business activity also hit the manufacturing and service sectors, with a sizeable amount of companies in the survey pointing the finger at ‘Brexit’ as the reason for the downfall.

Services appear to have suffered more, as new orders dropped at the most rapid rate for seven years, while manufacturing orders fell for the first time since the opening quarter of 2013.

Due to the plummeting pound, new export business was a shining light in the survey for UK companies, as this rose for the second month running, and to the highest volume in two years.

The downside to this was an steep hike in manufacturers’ input prices, as the pound’s exchange rate led to purchase price inflation rising to a five-year record.

The pound in response to the negative data has sharply fallen this morning GMT, the GBP/USD rate peaked today at just over $1.328, and was down to $1.316, sterling lost ground on the euro yesterday as the European Central Bank elected to keep stimulus policies unchanged, with this latest economic news GBP/EUR has declined from 1.203 euros down to 1.192 euros.

 Euro Area  Growth Edges Down to One and a Half Year Low

 Business activity in the euro area has fallen to an 18 month nadir, as the IHS Markit PMI output  reading for July was 52.9, compared to 53.1 in the prior two months, while only a marginal easing of the pace of growth, but still above the neutral 50 index score.

Rates of expansion in the all important manufacturing and service sectors slowed down, dropping to an 18 month low in services, and a more moderate two month base point in manufacturing.

An upturn in export orders was the main driving factor behind the manufacturing sector’s less harmful decline, a weak euro  an advantage to the sector.

Although export growth slowed  from the six-month high in June, partly due to weakened sales to the UK, following ’Brexit’ and the subsequent weakened pound.

In  Germany, PMI respondents reported the fastest rate of output growth for this year, with large employment growth, and services growth revived from June’s 13- month low, and factories’ production levels was the largest improvement since April 2014.

While in France, business activity stabilised after being reduced in June, boosted by a marginal return to growth in services, and an easing in the rate of decline in manufacturing.

Overall, the results of the euro area PMI over the past 37 months, has indicated that there has been business activity increases, as a result employment across the two sectors rose in July at the fastest rate since February 2011, over the past four months job creation has been hiked at a steady pace.

Its uncertain whether this trend will continue, as the survey found that business expectations are now the lowest that have been for 19 months.

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