Bank of England sees no clear evidence Brexit has hurt economy yet
The Bank of England said it had seen no clear signs yet of damage to British companies after the vote to leave the European Union
The Bank of England said it had seen no clear signs yet of damage to British companies after the vote to leave the European Union, and one of its policymakers said she would wait for more evidence of a slowdown before backing an interest rate cut.
The BoE had warned before the June 23 referendum that companies could suffer from a Brexit vote. But it said on Wednesday that its regional agents found most companies they talked to after the vote did not plan to cut hiring or investment.
“As yet, there was no clear evidence of a sharp general slowing in activity,” the report said although it noted business uncertainty had risen markedly.
Sterling jumped almost a cent against the US dollar as the BoE report struck a less downbeat tone than other surveys that have shown declines in business and consumer confidence.
The pound rose further on Wednesday after one of the nine members of the BoE’s Monetary Policy Committee said she was not in a rush to cut rates and the effect of the referendum result on Britain’s economy could be slow-moving.
“There may be a case to adjust monetary policy soon,” Kristin Forbes wrote in the Daily Telegraph newspaper. “But until more hard data is available, I believe this is a good time to ‘keep calm and carry on’.”
However, a Reuters poll on Wednesday showed economists saw an average 60 percent chance that the British economy will suffer a recession in the coming year, and most expect the BoE will cut rates on Aug. 4, after its next meeting.
Last week, the BoE said most of its rate-setters expected to give the economy more help in August, possibly using a package of measures. As well as a rate cut, they might revive bond purchases and other measures to boost bank lending.
The Bank’s chief economist, Andy Haldane, said last week the BoE should move fast and hard to see off the risk of a Brexit shock to Britain's economy. But another MPC member, Martin Weale, said on Monday he wanted to see evidence of the hit to the economy before moving on rates.
The lack of a clear impact of Brexit on companies found in the BoE survey and the cautious comments about rate cuts from Forbes and Weale raised questions about how aggressively the Bank might move next month.
As well as pushing up sterling, the BoE report also reduced demand at an auction of 1.5 billion pounds ($1.97 billion) of 20-year government debt.
Hit still to come?
However, the BoE survey left open the risk that the full impact of the Brexit vote has yet to be felt.
Many firms told the BoE they were reviewing their strategy in light of the unexpected outcome of the vote and about a third expected to cut hiring or investment over the next 12 months.
“There were a few reports of planned foreign direct inward investment being postponed,” the report said.
“A number of companies were considering alternative European locations for aspects of their business, and some contacts within large international firms expected their continental European operations to receive a greater share of future investment than their UK ones,” it added.
The BoE has estimated Britain’s economy was growing roughly in line with its long-run average before the June 23 EU vote. Data on Wednesday showed the unemployment rate dropped to its lowest since 2005, at 4.9 percent in the three months to May.
($1 = 0.7596 pounds)
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