Pound falls as survey suggests possible post-Brexit recession

The pound fell again on Friday as analysts said a drop in purchasing managers' confidence since last month's Brexit vote showed Britain could be in recession.

The pound, which has lost nearly 10 per cent of its value against the dollar since Britain voted to leave the European on June 23, dropped to 1.3106 dollars by midday Friday, down 0.8 per cent from Thursday's close.

The flash purchasing managers' index (PMI) from market analysts Markit dropped from 52.4 in June to 47.7 in July, its lowest since April 2009.

A figure below 50 in the index, which is based on a monthly questionnaire, indicates a negative outlook as measured by managers' purchasing intentions.

"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," said Chris Williamson, Markit's chief economist at Markit.

"The downturn... was most commonly attributed in one way or another to Brexit," Williamson said.

In a briefing note, Ruth Gregory, an economist at Capital Economics, said the fall in Markit's flash PMI was "consistent with a quarterly contraction in GDP of around minus 0.4 per cent."

Daniel Vernazza, lead research economist for UniCredit Bank in London, said he expects Britain's GDP growth to "flatline in the third quarter of 2016 followed by two consecutive quarters of mildly negative growth - a technical recession."

But Vernazza cautioned that "considerable uncertainty surrounds these forecasts," joining other analysts who expect the Bank of England to cut interest rates on August 4.

Last update: Fri, 22/07/2016 - 15:00
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