The Bank of England is starting to see its Brexit predictions show up in the plans of U.K. companies, which are scaling back job creation and investment.
A survey of firms by its representatives across the country found that “the result of the European Union referendum would have a negative effect, overall, on capital spending, hiring and turnover over the coming year,” the BOE said in its agents’ summary of business conditions. “Employment and investment intentions had weakened in absolute terms.”
The poll, carried out from late June to late July, adds to evidence that Britain’s vote on June 23 to leave the EU is throwing a wrench in companies’ spending plans amid uncertainty over the nation’s future relationship with the single market. The divorce means years of negotiations, with the U.K.’s ability to trade freely with the bloc, its “passport” for financial services, and the free movement of workers all at stake.
“There are clear risks to the economic growth story,” said James Knightley, senior economist at ING Bank NV in London. “With British businesses suggesting that they are pulling back on expansion plans, the survey is consistent with the general consensus expectation among economists that the U.K. will experience a mild recession.”
Economists in a Bloomberg survey see a contraction this quarter and next, and the National Institute of Economic and Social Research said on Tuesday that the economy probably shrank 0.2 percent in July alone. BOE Governor Mark Carney said on Aug. 4 that the economic outlook had “changed markedly” as policy makers cut the benchmark interest rate to a record low and resumed quantitative easing.
The company survey showed some sectors of the economy faring better. Most notably, a decline in manufacturing exports has been halted by the depreciation in the pound since the vote.
The expected hit from Brexit was expected to be most negative for business services and construction. All sectors saw a decline in hiring activity and intentions, pointing to broadly unchanged levels of staff numbers over the next six months, the BOE said.
Any increase in joblessness could have a knock-on effect on consumption — bad news for an economy reliant on household spending. The BOE also said annual spending had slowed since the referendum, consistent with other surveys showing a deterioration in consumer confidence since the vote.