. . . BUT BUYING SURVEY SIGNALS DOWNTURN

BRITAIN remains on course for a slump following the referendum to leave the European Union with the highly regarded Purchasing Managers’ Index set to show a continued decline in business sentiment this month.

The gloomy picture for the economy runs counter to the increase of new posts being seen in the jobs market – but it follows the sharp falls in sentiment recorded by the survey in July.

Samuel Tombs, chief UK economist at consultancy Pantheon Economics, expects a PMI figure of 48.5 for manufacturing and 46 for construction – where anything under 50 implies a contraction in activity.

A figure for the key services sector will follow a week tomorrow, and Tombs expects that to indicate decline as well. Jobs data for July showed an unexpectedly positive picture, with the claimant count falling by 8,600 when many economists had expected a rise.

And surging share prices, in some cases even among companies focused on the UK economy, have led many to conclude the vote will have at least a more muted effect on the British economy than had been predicted.

But others argue that strong consumer confidence figures could prove short-lived.

‘I don’t see what’s likely to have changed for businesses over the last month. The key uncertainty is EU negotiations, and there hasn’t been any news,’ said Tombs.

He said the purchasing managers’ figures are good at picking up turning points in the economy. ‘The PMI correctly called the start and the end of the last recession, unlike the initial GDP estimates.’

Tombs is forecasting a 0.2 per cent dip in the economy in the third quarter and a further 0.2 per cent fall in the last three months of the year. Next year he expects growth of just 0.5 per cent.

‘Whether the economy enters recession will hinge more on corporate behaviour than on consumers. Household spending accounts for about two-thirds of GDP, but it is a relatively stable component of demand,’ he said.

Tombs says businesses have built up big ‘inventories’ over the past few years which they could use up rather than buying new goods. He believes this could knock a percentage point off GDP.

His fears echo separate worries last week from WPP boss Sir Martin Sorrell that businesses will hoard cash amid fears for the future rather than invest.

‘The fundamentals are currently still pretty decent for consumers. Consumers are benefiting from record high employment and earnings growth running well above inflation,’ said Howard Archer, chief UK economist at consultancy IHS Global Insight.

But he added: ‘It seems inevitable the fundamentals for consumers will weaken over the coming months.’

Archer believes both manufacturing and construction PMIs will be in negative territory. He is also expecting Nationwide to say on Wednesday that house prices fell in August, by 0.3 per cent.