The composite index, which includes manufacturing and services, plummeted from 52.4 in June to 47.7. Any measure below 50 indicates the economy is shrinking.
Chris Williamson, chief economist at Markit said: “At this level, the survey is signalling a 0.4% contraction of the economy in the third quarter, though much of course depends on whether we see a further deterioration in August. Given the record slump in service-sector business expectations, the suggestion is there is further pain to come.”
The services index dropped from 52.3 to 47.4 — a seven-year low — and the manufacturing index fell from 52.1 to 49.1, a 41-month low.
“The collapse in the composite PMI to its lowest level since April 2009 provides the first major evidence that the UK is entering a sharp downturn,” said Samuel Tombs of Pantheon Macroeconomics.
The FTSE 100 dipped but then recovered as traders decided more stimulus would be pumped into the economy.
Ruth Gregory at Capital Economics said: “The composite PMI is now at a level that points, on the basis of past experience, to the monetary policy committee cutting interest rates by 50 basis points.”
