Brexit hits London and South East economies hardest

London, with a score of 44.4, and the South East, which scored 45.5, are the worst hit regions in the country

The drop in July was the first time these regions had gone into contraction since 2012
The drop in July was the first time these regions had gone into contraction since 2012

Companies in London and the South East were most severely impacted by the shock vote to leave the EU, according to a manufacturing survey.

Businesses across England and Wales reported a drop in output in July for the first time since 2012, according to the survey by Lloyds Bank.

Lloyds said the purchasing managers' index, which measures news orders, deliveries and employment, among other things, dropped from 52.5 in June to 47.4 in July, its lowest since April 2009. A reading below 50 signifies contraction, and the greater the divergence from the 50 mark, the greater the rate of decline.

But London, with a score of 44.4, and the South East, which scored 45.5, were the worst hit. It was the first time these regions had gone into contraction since 2012.

The North East was close behind with a score of 46.0, meaning it had also gone into decline.

Only the East of England and the East Midlands were growing, with scores of 51.0 and 50.9 respectively.

“As expected, business activity has slowed on the back of the EU Referendum result. Whilst the impact has been felt across the UK, companies in the South East and London were hit particularly hard, with PMI at the lowest point since 2009 and output contracting for the first time since 2012," said Tim Hinton, managing director of mid-markets and SME Banking at Lloyds Banking Group.

The weaker pound had benefitted exporters but also increased costs for businesses, putting pressure on inflation, Hinton said.

"UK firms will likely face challenges in the short-term but the Bank of England’s decision to cut interest rates could help crystallise important investment decisions and in turn support the economy," he added.

The Bank of England announced a heavyweight package of stimulus measures after its latest Monetary Policy Meeting, including slashing interest rates from a seven year low of 0.5 per cent and lending as much as £100bn to banks to ensure the stimulus reached the economy.

The new plans add up to a total £170bn spent on propping up the UK economy since the financial crisis of 2008.

The pound dropped immediately after the announcement, signalling that the package of measures went much further than traders were expecting.

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