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BOE sees flat UK investment even as Brexit sentiment bucks

Wednesday, November 9, 2016 - 21:28

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The Bank of England said business investment may stagnate at best over the coming year even as it highlighted the economy's resilience since the Brexit vote in June.

[LONDON] The Bank of England said business investment may stagnate at best over the coming year even as it highlighted the economy's resilience since the Brexit vote in June.

Companies expect spending to be "broadly stable or slightly lower" as a result of uncertainty in the wake of the U.K.'s June decision to leave the European Union, the BOE said in its Agents' summary of business conditions, based on information from a network of representatives across the U.K.

The report also noted that sterling's drop since the referendum has helped manufacturing exports, a view echoed in monthly industry surveys. Separate data on Wednesday showed that trade is on course to contribute to UK economic growth for the first time this year, with the deficit in goods and services narrowing in the third quarter.

The British Chambers of Commerce on Wednesday downplayed the impact of the currency, saying it can't be a complete solution to the trade gap.

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Market voices on:

"While the decline in the value of the pound is likely to provide some impetus to UK exporters, the lack of responsiveness of UK exports to other sterling devaluations in recent years suggests it is unlikely to provide a quick fix to the weak net trade position," said Suren Thiru, head of economics at the BCC.

The BOE's latest overview of the economy comes a week after it kept its key interest rate on hold at 0.25 per cent and maintained its current package of stimulus measures. The BOE also raised its forecasts for growth and inflation in the near term and adopted what Governor Mark Carney said was "neutral bias," with policy makers ready to loosen or tighten as needed.

The agents' report said consumer demand had recovered further and that the pound's 17 per cent drop since June 23 was playing a part; spending on luxury items rose thanks to tourists taking advantage of the weaker currency.

Nevertheless, the flip side from sterling's depreciation is that import costs have also increased, which is filtering through to higher prices for consumers. The BOE said factory output-price inflation had turned positive and will probably pick up further as foreign currency hedges and fixed-price contracts expire.

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