S&P says post-Brexit vote bounce could be temporary


Britain’s post-referendum recovery may prove to be a mirage, a leading credit rating agency has warned, as uncertainty about the country’s relationship with the European Union persuades companies to delay staff hiring and investment.

Standard & Poor’s said signs of recovery should be treated with caution because a rebound in August only made up for ground lost in July.

While the news is encouraging, we believe it has no bearing on the cloudy longer-term outlook for the UK economy, said Sophie Tahiri, an economist at S&P Global Ratings.

Tahiri said the economy recovered in August after the Bank of England cutinterests rate to 0.25% and deployed a range of other measures to stimulate an economy that appeared to be heading for recession.

A barrage of new data for August suggests that the economic hit may have been a temporary reaction. The rebound suggests that the short-term impact of the Brexit vote is less severe than many had thought, she said. Unfortunately, it doesn’t categorically rule out any negative short-term impact.

Companies reported a slump in business in July before a bounceback in August. Forecasters that predicted a recession after a no vote, including the International Monetary Fund and the Treasury, have been accused of supporting scaremongering by remain campaigners to persuade voters to stay in the EU.

S&P said surveys of the manufacturing, construction and services sectors in July and August showed the two months largely cancelling each other out to give a picture of a broadly stagnating economy.

An expansion over the next few months could be viewed as the economy returning to business as usual, but this may prove to be premature or even a mirage, said Tahiri.

The uncertainty surrounding the U.K’s future outside of the EU and the associated economic risks, which we think are pronounced and predominantly skewed to the downside, will gradually take its toll, particularly on investment, as businesses start dealing with the new Brexit reality, she said.

The British Chambers of Commerce (BCC) has more than halved its GDP growth prediction for next year from 2.3% to 1.0%, reflecting concerns that employers will be reluctant to recruit new staff and invest. Higher inflation and stagnant wages will also limit consumer spending.

If growth slows to 1% it would mark the worst economic performance since 2009, when the UK was emerging from a deep recession sparked by the global financial crisis.

News Source TheGuardianNews

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