Theresa May’s new administration has received a significant boost from a Bank of England report showing that the economy has been resilient in the first few weeks since the Brexit vote and displays no general signs of slowing down.
The monthly survey by the Bank’s regional agents – considered to be the “eyes and ears” of policymakers in Threadneedle Street – found that a majority of firms questioned were not planning to mothball investment or change hiring plans.
Even so, City analysts said the Bank was still likely to announce fresh stimulus measures for the economy next month in anticipation that the better-than-expected economic news since the referendum would not last.
Howard Archer, chief UK economist at IHS Global Insight, said: “While there may be some relief that the economy may have dodged an immediate sharp slowdown from the Brexit vote, the danger is still very much there given the major uncertainty that is apparent – and there seems a compelling case for the Bank of England to deliver a substantial package of measures at its August meeting to try and bolster business and consumer confidence”
The agents’ report was released at the same time as the Office for National Statistics reported that the labour market remained solid in the period from March to May, the first three months of the referendum campaign, with the jobless rate falling to its lowest level in more than a decade.
The chancellor, Philip Hammond, said the figures were “proof that the fundamentals of the British economy are strong”. He added: “As the economy adjusts to the effect of the referendum decision, it is doing so from a position of economic strength.”
The Bank of England said its agents had stepped up their investigations in the wake of the Brexit vote to find out how businesses were reacting. It found that for many companies the result had come as a shock, but with few having contingency plans, the tendency had been to adopt a “business as usual” approach.
“The outlook for investment was uncertain,” the report said. “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.”