Recession warning as UK economy hits 'seven-year low'

Video report by ITV News Deputy Political Editor Chris Ship

Economic activity in the UK has fallen to its lowest level since April 2009 following the Brexit vote, it has been revealed.

The Markit Flash UK Composite Output Index, which measures growth, plummeted to its lowest level since the financial crisis, falling to 47.7 in July. A reading over 50 indicates growth.

The data was collected between July 12 and 21, with the slump triggered by falling output and orders for the first time since the end of 2012.

Chris Williamson, chief economist at Markit, said the update showed a "dramatic deterioration" in the UK economy, which is on course to contract by 0.4% in the third quarter.

He said: "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'.

"Given the record slump in service sector business expectations, the suggestion is that there is further pain to come in the short-term at least."

The update comes after the Bank of England said on Wednesday that business uncertainty had "risen markedly" since the Brexit vote - but there was "no clear evidence" of a sharp economic slowdown.

Sterling was down 0.2% against the dollar at 1.318 US dollars after the report was published, while the pound also fell 0.3% against the euro at 1.195 euro.

Chancellor Philip Hammond said tax and spending policy would be "reset" if the economy took a downturn following the EU referendum.

He revealed he is ready to use the Autumn Statement mini-Budget to set the economy on a different course if analysis shows the Brexit vote has had an impact.

Chancellor Philip Hammond said tax and spending policy would be Credit: PA

ITV News Deputy Political Editor Chris Ship said the report was not necessarily a prediction of a recession.

In order for that to happen the UK would need two consecutive quarters of contraction.

He said: "This suggests the economy has contracted a bit at the moment but this could be a short, sharp shock.

"Whatever happens, Brexit has had an impact in the short term."