UK firms expect Brexit vote to weaken investment and hiring, Bank finds

Britain’s businesses expect the vote for Brexit to lead to weaker investment, hiring and turnover over the coming year, according to a nationwide study by the Bank of England.

The monthly health check by Threadneedle Street’s regional agents found that construction and business services were the two gloomiest sectors during the month that followed the June referendum.

The one part of the economy that envisaged easier trading conditions was manufacturing, where exports will be made cheaper by the fall in the value of the pound.

The agents – considered to be the eyes and ears of the Bank – conducted interviews with 270 businesses employing 1.2 million people.

“Consistent with the survey results, agents’ scores for companies’ investment and employment intentions have weakened in absolute terms since the referendum result”, the report said. “Those scores point to broadly unchanged levels of staff numbers and capital spending over the next six and 12 months respectively.”

The survey also found that consumer spending growth had slowed, but said this had partly been the result of July’s wet weather.

Agents’ reports are studied carefully by the Bank’s nine-strong monetary policy committee when they are making their decisions.

The downbeat tone of the latest survey would have been available to the MPC before it announced last week’s package of stimulus measures, including a cut in interest rates to 0.25% and a resumption of quantitative easing.

James Knightley, economist at ING, said the survey was consistent with the general consensus expectation among economists that the UK would experience a mild recession over the next six to 12 months. “We therefore expect Bank rate to be cut again in November to 0.1% with QE eventually upped to half a trillion pounds despite the BoE’s problems in purchasing bonds yesterday.

“We then expect Chancellor Phillip Hammond to carry through with his suggestion resetting fiscal policy at the autumn budget statement, likely implementing an acceleration in infrastructure investment financed by borrowing to try and improve the productive potential of the UK economy.”