Britain’s economy is shrinking, the broadest survey of business confidence since last month’s historic vote to quit the European Union showed on Friday, piling pressure on new Prime Minister Theresa May’s government to soften the impact.
Philip Hammond, the new finance minister, had already hinted at loosening the national purse strings.
The flash, or 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.
“July saw a dramatic deterioration in the economy,” said Chris Williamson, Markit’s chief economist. “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 readout, little more than a week after May formed a new Conservative government, indicates the scale of the challenge she faces to maintain market and investor confidence as she embarks on what promises to be long and difficult Brexit talks.
Hammond, speaking on a trip to China just before the release of the PMI surveys, gave the clearest indication yet that he may respond to the weakening economy by steering away from the restrictive fiscal policy of predecessor George Osborne.
“Over the medium term we will have the opportunity with our Autumn (budget) statement … to reset fiscal policy if we deem it necessary,” Hammond said.
Hammond is attending a weekend meeting of finance ministers from the Group of 20 economies at which counterparts will be keen to hear how Britain can pull off a smooth exit from the EU while minimizing the damage to the global economy.
The International Monetary Fund has already cut its forecast for global growth after Brexit threw “a spanner in the works”. It has slashed its UK growth forecast for 2017 by 0.9 percentage points to 1.3 percent