In a further sign of faltering economic activity in Britain following the Brexit decision, the UK services sector registered a fall in business activity in July, with output and new business both declining for the first time in over three-and-a-half years, and at the fastest rates since early 2009.

Employment in the sector was unchanged since June, ending a three-and-a-half-year period of uninterrupted job creation. The 12-month outlook for activity weakened sharply to the lowest since February 2009, linked to uncertainty regarding Brexit, according to survey data from Markit.

The headline figure for the survey is the seasonally adjusted Markit/CIPS Services Business Activity Index, a single-figure measure designed to track changes in total UK services activity compared with one month previously. Readings above 50.0 signal growth of activity compared with the previous month, and below 50.0 contraction.

The index fell to 47.4 in July, from 52.3 in June, the first contraction since December 2012, and the rate of decline was the strongest since March 2009. Moreover, the month on month decline in the latest period, at 4.9 points, was the largest observed since the survey began in July 1996.

Sharp Contraction

New business also declined for the first time since the end of 2012. The pace of contraction was sharper than that seen for total business activity, and the fastest since March 2009. Companies widely reported that the outcome of the EU referendum had weighed on new business inflows during the month.

In Association with

Cost pressures reached a three-month high in July, and the second-strongest in over two years. This was linked to salaries, fuel, food prices and the impact of the weaker sterling exchange rate. That said, inflation remained weaker than the longrun survey average. Although costs rose more sharply, prices charged by service providers increased at the slowest rate in five months.

However, not all was gloom — UK service providers expect business activity to rise over the next 12 months.

Chris Williamson of Markit said: “The marked service sector downturn follows news from sister PMI surveys showing construction activity suffering its steepest decline since mid-2009 and manufacturing output contracting at the fastest rate since late-2012. At these levels, the PMI data are collectively signalling a 0.4% quarterly rate of decline of GDP.

“The unprecedented month-on-month drop in the all-sector index has undoubtedly increased the chances of the UK sliding into at least a mild recession.”

David Noble of the Chartered Institute of Procurement and Supply commented: “Any vestiges of hope were packaged up in the potential for new international business due to a weaker pound, and employment levels remaining steady. This may be scant consolation if this Brexit hangover lasts much longer.”