Bank of England (BoE) Agents’ summary of business conditions

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Intelligence report on businesses and consumer actions post-referendum

(http://www.bankofengland.co.uk/publications/Documents/agentssummary/2016/jul.pdf)

Little to moderate change in annual rate of activity growth

“The annual rate of activity growth had remained moderate and little changed in the month up to the EU referendum. Consumer spending and construction output growth had eased a little, offset by a pickup in manufacturing growth from a low base. There had been further signs of uncertainty leading to delays in decision-taking, including on capital spending, hiring and property investment.”

Businesses weren’t prepared for the Brexit

“Many contacts planned to undertake strategic reviews of their operations over the coming months in light of the vote. For many, the result of the referendum was a shock; few had contingency plans and so for the time being were in a mode of seeking to maintain ‘business as usual’.”

Companies considering location changes and postponing FDIs

“As yet, there were few suggestions of disinvestment, such as exiting the United Kingdom in the near term, but there were a few reports of planned foreign direct inward investment being postponed. 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.”

A ´risk off´ approach in the near term for firms

“The outlook for investment was uncertain. The majority of firms spoken with did not expect a near-term impact from the referendum result on their capital spending. But around one third expected some negative effects over the next twelve months, with reports of a ‘risk off’ approach to

expenditures and some imminent plans for spending slipping.”

Consumers are hesitant on higher value purchases

“There had been little evidence of any impact on consumer spending on services and non-durable goods, although there were some reports of consumers becoming more hesitant around purchases of higher-value goods.”

Companies expect to reduce hiring activity

“As yet, there had been few reports of major alterations to businesses’ employment intentions. But the vote to leave was expected to have a negative effect overall on hiring activity over the coming twelve months.”

Prices expected to rise but may not be passed to consumers

“Companies’ prices were likely to increase, as the fall in sterling passed through to higher import costs …Given intense competition, retailers reported seeking to minimise increases in consumer prices, with a view to protecting their market share. But in some services, such as catering, there were expectations that prices could rise relatively quickly.”

Lending unaffected, demand for credit easing.

“But the early evidence indicated that banks’ appetite to lend had been maintained following the referendum decision. There were reports that demand for credit was easing alongside lower expectations for investment spending.”