The authors of a respected economic survey are predicting the UK economy contracted in the second quarter of the year, raising fears of a potential recession ahead.
According to an all-sector calculation, following the final IHS Markit/CIPS purchasing managers’ index (PMI) reading for June, the economy will have recorded negative growth of 0.1% between April and June.
If such a performance was to be confirmed by official statistics – and then the economy failed to achieve growth in the current third quarter – it would leave the country in a technical recession ahead of its next Brexit deadline of Halloween.
UK output has proved resilient since the vote to leave the EU, with record employment and wage rises largely outpacing price growth – inflation.
But economists have pointed to a steady decline over the past 12 months.
Brexit stockpiling in the first quarter of the year, which boosted growth to 0.5%, is believed to have unwound in the following three months at a time when the US-China trade war hit demand in the global economy.
The latest PMI survey suggested the powerhouse service sector – responsible for much of the UK’s positive performance since 2016 – grew only marginally last month, slowing further since May.
The prediction of a contraction in the second quarter was based on the findings of earlier PMI surveys covering the three months, which also take in manufacturing and construction activity.
Output in the construction sector was found to have fallen at its steepest rate since April 2009 in June while UK factories suffered their worst monthly decline in six years.
The gloomy forecast did little to help the pound as it retreated on growing market fears the Bank of England may be forced to cut interest rates to help stoke demand.
It was trading below $1.26 versus the dollar.
Its weakness helped boost dollar-earning companies on the FTSE 100 which reached a ten-month high during the session and closed nearly 0.7% up on the day.
Chief business economist at IHS Markit, Chris Williamson, warned the surveys showed there was little sign of a pick-up ahead.
He wrote: “Importantly, the latest downturn differs from that seen in 2016 as it has followed a gradual weakening in the rate of economic growth rather than being a sudden and brief collapse in output after the ‘shock’ referendum result.
“The pace of growth has eased markedly since peaking a year ago, resulting in a steady deterioration in demand.
“Measured across the three sectors, inflows of new business fell in June for the fifth time so far this year, with the rate of decline gaining momentum to reach the second-steepest since April 2009.
“New orders fell in all three sectors, with construction registering the sharpest downturn followed by manufacturing, while services saw a marginal decline.”
But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said he did not believe a recession was on the way.
He said of the figures: “Growth in households’ real incomes looks set to pick up, as the recent fall in energy prices pushes CPI inflation below the 2% target and job growth remains strong.
“Notably, services firms reported in June that employment rose at the fastest rate since August 2017.
“Optimism among services firms about the outlook for activity in the year ahead also remained above its 12-month average in June, despite falling marginally.”