Bank of England sees
Brexit impact on jobs and investment
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[September 21, 2016]
By David Milliken
LONDON (Reuters) - British investment
and employment are likely to be flat over the coming year because of
the June vote to leave the European Union, according to a Bank of
England survey of businesses that leaves it on track to cut interest
rates again this year.
The BoE's regional agents, who speak to companies around the
country, found signs of resilience in consumer spending and the
housing market so far. But they also detected a growing reluctance
among businesses to hire and invest.
"Investment and employment intentions had fallen, and were
consistent with broadly flat levels of capital spending and
employment over the coming six to 12 months," the BoE said.
Its survey showed the weakest investment plans among British
companies since 2010.
The BoE has said it expects Britain's growth rate to more than halve
next year to 0.8 percent. On Wednesday the Paris-based OECD think
tank halved its forecast for British economic growth in 2017 to 1.0
Also on Wednesday, Britain's official statistics office said the
referendum appeared to have had little impact on the economy so far,
but the longer-term effects remained unclear.
Given the weak growth outlook, the BoE is widely expected to cut
interest rates, which are already at a historical low, to just a
fraction above zero in November.
The Bank said last week most of its policymakers still expected to
reduce borrowing costs unless their long-term view of the economy
changed. That was despite growing signs that the immediate
post-referendum slowdown will be less sharp than first feared.
Economists are also focused on finance minister Philip Hammond's
first mid-year budget statement on Nov. 23. He has said he will
delay plans to achieve a budget surplus and he will consider some
modest increases in spending to help the economy.
"While I recognise that there may be some difficult times ahead, I
am confident that we have the tools necessary to support the economy
as we adjust to a new relationship with the EU," Hammond said in
response to the OECD growth downgrade.
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However his scope to boost the economy may be limited. Official figures showed
public borrowing in August exceeded economists' forecasts and growth in sales
tax revenue was its slowest since March 2015.
IN THE RED FOR FIVE MORE YEARS?
Britain's budget deficit stood at 4.1 percent of economic output in the last
financial year, down from over 10 percent in 2010 but still among the highest
for a developed nation.
"We suspect that the overall combination of subdued growth and more
accommodative fiscal policy will result in ... the books remaining in the red by
the end of the forecast horizon in 2021/22," Investec economist Philip Shaw
As well as weak investment, the outlook for hiring is uncertain too. A survey by
the Recruitment and Employment Confederation showed employers are planning to
hire more staff to meet demand in the coming months but confidence about future
investment and hiring deteriorated.
The BoE said consumers seemed less worried and a separate survey by financial
data firm Markit showed stable expectations among households about personal
The BoE said it was too soon for exports to feel a major benefit from the
sterling's 10 percent fall since the Brexit vote, and companies would face
higher import costs because many goods are not produced by British suppliers.
Businesses were not yet passing on costs to "highly price-sensitive" consumers,
but some supermarkets were "re-engineering products" to use cheaper ingredients,
(Additional reporting by Andy Bruce and Helen Reid; editing by William Schomberg
and Richard Balmforth)
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