Bank of England Survey Strengthens Outlook for Weaker British Economy, Reports Reuters

Economic Growth Slows in UK Business Services and Consumer Spending

By Andy Bruce

LONDON – A recent survey from the Bank of England (BoE) indicates a slowdown in growth across British business services, as consumer spending eased last month. This paints a more nuanced picture of the economy compared to some of the more pessimistic signs observed since the Brexit vote in June.

The BoE shared findings from its August regional agents’ survey in last week’s quarterly Inflation Report, which revealed that firms anticipate the referendum will negatively impact capital spending, hiring, and turnover over the next year.

While the report suggests the economy may decelerate, the monthly survey of approximately 700 companies did not reflect the same severity as the broader purchasing managers’ indexes (PMIs).

"This survey provides some support to the idea that the immediate steep decline in the PMI indices may have been somewhat exaggerated," said James Knightley, senior economist at ING.

Last week’s PMIs indicated that the economy is contracting at its fastest rate since the financial crisis of 2008-09. Deputy Governor Ben Broadbent highlighted this issue in a recent interview as a contributing factor to the BoE’s decision to reduce interest rates to a record low and initiate stimulus measures potentially amounting to £170 billion for the financial system.

According to the BoE survey, revenue growth among business services firms fell to a three-year low, whereas the slowdown in consumer services was considerably less pronounced. The BoE’s assessment of retail sales values reached its lowest point since August 2012, although the central bank attributed part of this decline to particularly wet weather.

Major retailers, including popular supermarket chains and department stores, reported that they had yet to feel the impact of the referendum results, with the British Retail Consortium noting robust spending growth.

However, similar to other business surveys, the BoE reported a decrease in investment and employment intentions last month. Knightley concluded, "With British businesses indicating they are scaling back their expansion plans, this survey aligns with the general expectation among economists that the UK will enter a mild recession over the next 6-12 months."

The BoE recently predicted that growth rates would slow to just above zero for the remainder of the year, but it refrained from forecasting an outright recession, partly due to the anticipated effects of its own stimulus measures.