S&P: Brexit blues not over

John Hewitt Jones

September 14, 2016

Positive expectations about the state of the British economy may prove ill-founded in the long-term, according to a report published by ratings agency Standard and Poor’s.

A flurry of new data published in August indicated the economic hit may have been a temporary reaction, however, a negative short-term impact on markets should not be ruled out, according to the report.

Data published following the Brexit vote in July indicated a clear hit to the economy in the wake of the referendum outcome. Following the deterioration in market conditions the Bank of England cut its policy rate by 0.25% to 0.25% and deployed easing measures to support the economy.

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

PMI readings published in July and August are consistent with broadly stagnating economic activity over the two-month period, meaning conclusions that life has returned to “business as usual” may prove premature.

Tahiri added: “The uncertainty surrounding the U.K’s future outside of the E.U. 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.”

At its first meeting after the Brexit vote, the European Central Bank decided to keep its monetary policy unchanged.

Part of the reason for this is the resilience of the most recent activity indicators in the Eurozone, even after the Brexit vote.

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