Brexit deals blow to UK economy

LONDON (AP) – Britain’s economy appears to be shrinking at its fastest pace since the global financial crisis as a result of the vote to leave the European Union, but the rest of the region is holding up, surveys showed Friday.

The findings come as global financial leaders meeting in China identified the uncertainty generated by Britain’s decision to exit the EU, the world’s biggest economic bloc, as a key risk to the global economy.

But while the International Monetary Fund has trimmed its world growth estimates, surveys of hundreds of business executives in Europe indicate the economic damage is so far largely contained to Britain.

The so-called purchasing managers’ index for Britain – a gauge of business activity closely watched by investors and policymakers – fell to 47.7 points in July from 52.4 in June. The figures are on a 100-point scale, with the 50 threshold separating growth from contraction.

The survey, conducted by IHS Markit, is one of the first official measures of how the economy responded to the vote, and is based on questionnaires sent to executives in over 1,200 companies between July 12 and 21.

“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, chief economist at Markit. “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.'”

By contrast, the equivalent index for the 19-country eurozone dropped to 52.9 points from 53.1 in June. The drop was relatively small and suggests continued economic growth of around 1.5 percent annually.

A departure from the EU could mean companies based in Britain are cut off from the bloc’s single market, which guarantees no tariffs on trade and the free movement of workers and money.

The uncertainty over Britain’s trade relations, which will take years to renegotiate, is causing companies to hold back investment and hiring or even to make cuts. That could include European companies that are unsure about the future of their operations or sales in Britain.

The weeks of British political uncertainty, with the prime minister resigning after the vote and the main parties in disarray, also hurt confidence.