Output and new orders fell for manufacturing, with the service sector hit particularly hard during July, according to data from Markit.

The Markit Purchasing Managers Index for services fell to 47.4 in July from 52.3 the previous month, its lowest reading since April 2009. Manufacturing dipped from 52.3 in June to 47.4. A reading below 50 signifies a contraction.

Chris Williamson, chief economist at 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.”

He said that the survey signalled a 0.4% contraction in the economy during the third quarter, though much of this depends on whether there is a 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,” said Wlliamson.

Recession

Howard Archer, chief UK economist at IHS Global Insight, said it was a “truly horrible survey” pointing towards the economy getting a “good kicking as uncertainties and concerns set in”.

Archer said: “Whether it starts in the third or fourth quarter, we suspect that the UK is headed for mild recession, although we expect it to be brief. We currently forecast UK GDP to grow by 1.6% in 2016 – largely due to the first half expansion – and 0.2% in 2017.”

Analysts are widely predicting that the Bank will cut interest rates to 0.25% in August to help boost the economy.

Last week, the Bank defied market expectations and elected to keep interest rates on hold at their record low of 0.50%.

At a meeting of its Monetary Policy Committee, it hinted that next month rates could be cut and the quantitative easing programme restarted.

“In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August,” the minutes said.

Archer said: “The July purchasing managers surveys boost the case for the Bank of England to come up with a substantial package of measures at its 4 August meeting. We expect the Bank of England to cut interest rates from 0.50% to 0.25%.”

The market report contrasts with a Bank of England report which found that there is no clear evidence of a slowing in UK economic activity following the vote to leave the EU.

Its Agents´ Summary of Business Conditions survey for July found that in the month following the referendum the annual rate of growth has remained moderate, but business uncertainty had risen markedly.

It revealed that a majority of firms were not planning to change investment or staff hiring plans.

The Bank said the result was such a shock that few companies had contingency plans in place and so for the time being were taking a “business as usual” approach.

“A majority of firms spoken with did not expect a near-term impact from the result on their investment or staff hiring plans. But around a third of contacts thought there would be some negative impact on those plans over the next twelve months. As yet, there was no clear evidence of a sharp general slowing in activity,” the report said.

There were reports from agents of a dip in housing market sentiment after the referendum, but transactions had so far been more resilient than some contacts had expected.