UK economic activity has tumbled at the fastest pace since the depths of the last recession in the wake of the Brexit vote, with sharp contractions in both the services and manufacturing sectors.

Fears the UK economy could be headed back into recession were fuelled by these grim survey findings, published yesterday by the Chartered Institute of Procurement & Supply.

The survey weighed on the embattled pound. It boosted the UK stock market by fuelling expectations the Bank of England would have to cut base rates from their record low of 0.5 per cent next month in an attempt to combat the economic weakness arising from the Brexit vote.

Combined UK services and manufacturing output has tumbled this month at the fastest rate since April 2009, according to the report. The survey also shows a record drop in services companies’ future business expectations.

And the survey, conducted between July 12 and 21, reveals drops in new orders and employment this month in the manufacturing and services sectors.

The UK construction sector, which appears to have been hit hard by the UK electorate’s vote on June 23 to leave the European Union, is not included in CIPS’s initial “flash” survey results.

Howard Archer, chief UK economist at consultancy IHS Global Insight, described CIPS’s survey findings as “truly horrible”.

The business activity index for the services sector tumbled from 52.3 in June to 47.4 in July on a seasonally-adjusted basis, plunging well below the level of 50 deemed to separate expansion from contraction to signal the sharpest fall in output since March 2009. The drop in the index was the sharpest since comparable records began two decades ago.

The purchasing managers’ index for manufacturing dropped from 52.1 to 49.1 – to signal the sharpest contraction of activity in this sector for nearly three-and-a-half years.

A rare positive in the survey was an improvement in manufacturers’ export growth to the fastest pace in nearly two years following the pound’s tumble, but CIPS said it was not clear whether such opportunities would materialise in the long term given the “subdued” global economy. It also noted sterling weakness had raised manufacturers’ input costs very sharply.

Chris Williamson, chief conomist at CIPS survey compiler Markit, said: “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. 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’.”

He added: “The survey is signalling a 0.4 per cent contraction of the economy in the third quarter, though much of course depends on whether we see a further deterioration in August or if July represents a shock-induced nadir. 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.”

Mr Archer said: “We currently expect the UK economy to stagnate in the third quarter and then contract mildly in the fourth, but the purchasing managers’ survey suggests third-quarter contraction is a very real danger.”

He added: “Whether it starts in the third or fourth quarter, we suspect that the UK is headed for mild recession.”

Sterling was trading around $1.3091 at 5pm in London, down by 1.25 cents on its Thursday close. The euro was trading around 83.87p – up nearly 0.5p.