Only the manufacturing sector is expecting any sort of boost from the UK’s vote to leave the European Union, according to a new survey from the Bank of England.
The BOE released its August Agents’ summary of business conditions — a monthly review of what businesses in the UK are up to and their expectations for the future are — on Wednesday, and the findings make for worrying reading for every sector of the British economy other than manufacturing
The bank’s monthly survey of business conditions showed that Britain’s manufacturers expect a small uptick in their turnover, but that every other sector feels that a substantial drop is likely. Here’s the bank’s chart:
And here’s the key extract from the Bank of England (emphasis ours):
“Across sectors, the expected effects on turnover were most negative for business services and construction. In contrast, for manufacturing there was a slight positive effect on balance, reflecting an expected boost to export demand from the fall in sterling. But exports overall were expected to be broadly unaffected, as that positive effect was offset by an adverse impact on services exports associated with lower commercial real estate and mergers activity by overseas investors.”
With a very weak pound — it is currently hovering around 1.30 against the dollar — foreign businesses will be more inclined to buy British made goods as they are incredibly cheap, which will, in turn boost the business of manufacturers.
On the flipside, UK construction companies, which by their very nature carry out most of their operations on British soil, expect a substantial drop in turnover and general business conditions. That fear has already been reflected in a catastrophic set of PMI data from the construction sector released by Markit earlier in August. Markit’s survey showed that the industry is shrinking at its fastest rate in more than seven years following Britain’s vote to leave the EU. Shares in UK housebuilders have also taken a pummelling since the vote.
Here’s the Bank of England’s neat summary of how bad things look everywhere but manufacturing:
“Overall, respondents expected a negative effect from the vote on turnover, capital spending and hiring activity over the next twelve months. Output prices were expected to be boosted, on balance, as the rise in imported costs following the decline in sterling is passed through. That upward price effect suggests the effect on activity in real terms is more negative than that shown for turnover.”
Last month, the agents’ summary was one of the few economic surveys that was reasonably upbeat on the state of the post-Brexit economy, saying: “As yet, there was no clear evidence of a sharp general slowing in activity.” However, since that first survey sentiment seems to have dropped markedly.