Bank of England sees no clear evidence of sharp Brexit hit yet

LONDON: The Bank of England said it had seen no clear signs yet of a sharp economic slowdown after last month’s vote to leave the European Union, raising questions over how aggressively it will act to boost the economy when it meets next month.

The BoE’s regional agents, who speak regularly with companies, said business uncertainty had risen markedly but most firms 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.

A Reuters poll showed economists saw an average 60 per cent chance that the British economy will suffer a recession in the coming year and most expect the BoE will cut rates on Aug. 4.

With no hard data yet published on the impact of the Brexit vote on the economy, investors are taking their cue from any fresh signs of what might be going on.

Sterling jumped almost a cent against the US dollar as the BoE report struck a less downbeat tone than other surveys which have shown falls in business and consumer confidence.

“This is the coal face and engine room of an economy, and it matters a lot to us what they do. I am not surprised to see sterling rally and rate cut expectations pushed back,” said Neil Jones, London-based head of hedge fund FX sales at Japanese bank Mizuho.

Last week the British central bank surprised markets by keeping interest rates on hold, rather than cutting them to a record low.

But it also said most of its policymakers expected to approve a stimulus package at their August 4 meeting.

As well as a rate cut, this could also mean a resumption of bond purchases and other measures to boost bank lending.

On Friday the central bank’s chief economist, Andy Haldane, said he was willing to use a “sledgehammer to crack a nut” in cushioning any slowdown. But another policy-maker, Martin Weale, said the case for action in August had not yet been made.

The report also dented demand at an auction of 1.5 billion pounds ($1.97 billion) of 20-year government debt.

The report leaves open the risk that the full impact of the Brexit vote is yet to be felt.

Earlier this month the BoE said it expected the economy to slow markedly as a result of the decision to leave the EU, and on Tuesday the International Monetary Fund cut its growth forecast for Britain next year to 1.3 per cent from 2.2 per cent.