The Composite Markit Purchasing Managers’ Index (PMI) has indicated the biggest decline since the Global Financial Crisis of 2008-09, pointing to a 0.4% contraction in GDP in the third quarter.

The direction of the economy and asset prices will depend to a large extent on the Bank of England’s willingness and ability to offer monetary support.

Steven Bell, chief economist at BMO, notes that post-Brexit earnings revisions of UK-oriented FTSE250 equities have been tiny, leaving open the possibility of a correction in prices: “We think analysts are underestimating the severity of the immediate downturn in the UK’s economy.”

He suggests that monetary policy will be used to alleviate downward pressure. “We expect that the Bank of England will cut base rates by at least 0.25% when they meet on 4 August and announce a package of other measures .”

He adds that a great deal of negative sentiment is already priced in leaving open the possibility of a swift rebound.

“A much more significant market move is likely if and when the data start surprising on the upside. The future may be unknowable but my guess is that the economic downturn in the UK will be short as well as sharp.”

Unigestion also believes the BoE is likely to intervene, going a step further with bond purchases.

However, as a result of Brexit, it notes that among developed economies the UK uniquely exposed to inflationary pressure, which would limit the ability of the central bank to provide stimulus.

“The first, mechanical consequence of the Brexit vote – through the collapse of the country’s currency – will be a rise in imported inflation,” stated Gaël Combes, fundamental analyst, equities, and Florian Ielpo, head of macro research, cross asset solutions, in a research note.

The same dynamic occurred in the aftermath of the 2008 crisis. Then, the pound collapsed and the UK experienced a long-lasting episode of inflation with a 3.5% increase in CPI inflation.

“In these early days of July, inflation-linked bonds reacted rapidly. The UK inflation-linked bond maturing in 2068 has risen by 22% since the Brexit result – quite a performance.”