Money (18)

The UK economy will contract in the third quarter if July's performance continues, according to a closely watched survey.

Markit's flash purchasing managers index (PMI) for July fell to 47.7 - its weakest score since April 2009 at the height of the financial crisis and recession. Any score below 50 indicates economic contraction. It compared with June's score of 52.1.

Based on this data, Markit expects the economy to contract by 0.4% in the third quarter.

It is the first major indication of how the UK economy has performed following the vote to leave the European Union.

Output and new orders both fell for the first time since the end of 2012, while service providers’ optimism about the coming 12 months slumped to a seven-and-a-half year low.

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’."

The pound has risen as high as $1.3284 against the US dollar before the data was released, but it soon fell more than one cent to $1.3169.

Fresh Business Thinking economics expert, Michael Baxter, said: "Purchasing managers indexes do not always give an accurate snapshot of the UK economy, but they usually do. This latest iteration is the first piece of meaningful data related to the post-Brexit period, and it tells a worrying story. But bear in mind that the full impact of the falling pound won’t be felt for some time. Eventually, however, there will be an impact on inflation and thus real wages, and at that point, the UK economy may suffer a second post-Brexit shock.

"In the longer term, how well the UK economy copes will depend on what trade deals it can agree with the EU and countries beyond the EU. We can only wait and see, but I might like to add that very little attention has been paid to the threat to the UK services industry, especially financial services. Financial services often do not form part of trade deals, for example, the trade deal between Canada and the EU. For the UK economy, it is vital that its dynamic financial services are not frozen out of trade arrangements with the EU."

Before the Markit PMI was published, Chancellor Philip Hammond revealed he may use the Autumn Statement to "reset" the UK's economic policy, after reviewing data in the coming months.

He said: “Over the medium term we will have the opportunity with our Autumn Statement, our regular late year fiscal event, to reset fiscal policy if we deem it necessary to do so in the light of the data that will emerge over the coming months.”