Sign up to FREE email alerts from businessInsider - Daily Subscribe Thank you for subscribing See our privacy notice Invalid Email

The UK economy contracted at the steepest pace seen since early 2009 in the weeks following the UK's vote to leave the EU, a survey suggests.

The latest Markit/CIPS Flash UK PMI survey of around 600 companies suggests from data collected between July 12 to July 21, the UK economy opened the third quarter “on a weak footing”, with both output and new orders down for the first time since 2012.

The headline UK Composite Output Index fell to 47.7 in July, “its lowest reading since April 2009”, the report states.

A score below the baseline score of 50 suggests contraction and above 50 points to growth.

Output and New Orders indices also fell by 4.7 and 6.8 points respectively since June, “the steepest drops registered in the series histories”, the report states.

Adding: “The 10.4 point decline in the Services Business Expectations Index was also the largest on record.”

Optimism across the service sector “slumped to a seven-and-a-half year low”, the report suggests and manufacturing output and new orders were both down for the first times since the opening quarter of 2013.

However new export business rose for the second straight month “and to the greatest extent for almost two years”, which was “mainly linked to the sharp drop in the sterling exchange rate”.

The report adds: “The downside of the exchange rate was a steep rise in manufacturers’ input prices, mainly due to higher import costs.

“The rate of purchase price inflation hit a five-year record, with the extent of the acceleration among the steepest in the survey history.”

As a result, factory gate price inflation “reached a 23-month high” as companies passed on higher purchasing costs.

Service sector costs were not as badly affected, the survey found, as rising fuel and other input prices were partially offset by subdued wage inflation and service sector employment falling for the first time since December 2012.

Manufacturers also cut jobs for seventh consecutive month and “weaker demand and depletion of backlogs of work in both sectors suggest further job losses may occur in coming months”, the report states.

Sterling fell 0.4 per cent against the US dollar on publication of the report.

Chris Williamson, chief economist at survey compiler Markit, 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.

“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’.”

Williamson said at these current snapshot levels, the survey is “signalling a 0.4 per cent contraction of the economy in the third quarter”, though much depends on further deterioration in August “or if July represents a shock-induced nadir”.

“Given the record slump in service sector business expectations, the suggestion is that there is further pain to come in the short-term at least,” he said.