The UK service sector shrank at its fastest pace since the financial crisis after the vote to leave the EU in June.
The purchasing manufacturers index, compiled by Markit/Cips, showed that both output and new businesses had declined for the first time since early 2009.
The month-on-month decline in business activity was the largest observed since the survey began in July 1996.
The index measures new orders, deliveries and employment, among other things, and is considered a key indicator in the confidence of the sector.
The figures follow data showing that construction has slowed at its fastest pace since 2009 and manufacturing at the fastest pace since 2013 giving the first full picture of how the UK economy has reacted to the shock result of the EU referendum.
The services PMI is the most closely watched of the three surveys. The catchall term for businesses ranging from retailers to banks and accountants now makes up nearly 80 per cent of the UK economy, dwarfing any other individual sector.
Chris Williamson, chief economist at Markit, said that collectively the three survey show that UK GDP is set for a quarterly decline of 0.4 per cent.
"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," Williamson said.
He added that the results of the survey heap pressure on Mark Carney, governor of the Bank of England, to cut interest rates below their record low of 0.5 per cent when the Monetary Policy Committee meets on August 4.
"A quarter-point cut in interest rates therefore seems to be a foregone conclusion at tomorrow’s Monetary Policy Committee meeting, though the extent and nature of other non-standard stimulus measures remains a far greater source of uncertainty and the subject of intense speculation," he said.
Uncertain business conditions, rises in food and fuel prices and demand fron staff for higher wages put pressure on businesses in July, according to David Noble, group CEO of the Chartered Institute of Produrement and Supply.
“After three-and-a-half years of growth, the services sector returned to contraction as Brexit contagion suppressed new orders and overall output at rates last seen during the financial crisis in 2008-2009," he said.
Analysts agreed that the Bank of England was more likely to cut interest rates in light of the survey results.
"This was the last piece of major UK data ahead on tomorrow’s Bank of England rate decision. It provides more evidence (if any were needed) that the Bank will want to ease monetary policy further with the consensus view that it will cut its headline Bank Rate by 25 basis points. There’s also an expectation that the Bank will restart its asset purchases," David Morrison, senior market strategist at Spreadco, said.
.jpg?w=600)
