U.K. Bracing for Economic Slowdown

U.K. business confidence sank to a four-and-a-half-year low in the days after Britons voted to leave the European Union, adding to evidence that the decision is blighting growth.

With investors anxiously awaiting data on the Brexit's consequences, the gauge compounds signs that the referendum has hindered an economy that was already losing momentum. Even reports covering the period before the vote are showing signs of fragility, with Halifax saying house-price growth cooled in June. GfK is due to publish a one-off survey Friday that will assess consumer attitudes in the immediate aftermath.

The National Institute of Economic and Social Research said Thursday that its growth estimate for June is "one of intensifying contraction across the board." While it predicts growth of 0.6 percent in the second quarter, that's boosted by a strong figure for April. Once that drops out of the calculation, the institute expects "a quick deterioration."

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Jitters are mounting after more than five asset managers froze withdrawals from real-estate funds and the pound tumbled to a three-decade low. Lloyds Banking Group's gauge of sentiment slid to 6 in the days following the vote, from 32 in May. While that's the lowest since December 2011, in the midst of the euro-area's sovereign-debt woes, it's still above the trough seen during the global financial crisis. At the same time, an index of economic optimism plunged to minus 11, the first negative reading since July 2012.

"Current sentiment levels signal a clear weakening of the near-term economic outlook, which the Bank of England has already indicated a readiness to respond to," Lloyds senior economist Hann-Ju Ho wrote in the report. Still, "one month's results should be interpreted with care."

Separate data on Thursday showed U.K. industrial producers were holding up well before the vote, with the firms on course to post their first positive quarter in almost a year. Output at factories, utilities, and mines fell 0.5 percent following an upwardly revised 2.1 percent surge in April, the Office for National Statistics said on Thursday. Economists in a Bloomberg survey had predicted a 1 percent drop.

While the ONS says the Brexit effects won't appear in the official data until mid-August, a growing number of surveys show pessimism is intensifying. House prices—only just starting to feel the impact of last month's vote—gained 1.2 percent in the three months to June, down from 1.5 percent in the same period to May, Halifax said, casting doubt on prospects for the rest of the year.

BoE Governor Warns of Material Slowing in British Economy

Bank of England Governor Mark Carney has warned of a material slowing and signaled interest rates could be cut within months. Central bank officials began meeting on the matter on Wednesday and are due to announce their next policy decision on July 14.

The consequences of Britain's vote are "chaos, uncertainty and a lack of understanding," Eurogroup head Jeroen Dijsselbloem told lawmakers in The Hague on Thursday. "The U.K. will be worse off in every thinkable way."

An index for the industrial sector — which may benefit from the recent drop in the pound — fell less than gauges for business services and consumer services, Lloyds said. Sterling has dropped about 13 percent against the dollar since June 23 — potentially boosting import prices and making life harder for consumer-services firms.

Hiring provided a bright spot in the outlook, with the net balance of companies expecting to raise their staffing levels increasing to 26 from 24. There was positive news for job seekers too — with a gauge of firms looking to increase headcount climbing to 38 from 31.

The Lloyds survey was conducted from June 24-29 among a sample of 200 companies with revenues of more than 1 million pounds ($1.29 million) from all sectors and regions. Responses are weighted to reflect the composition of the economy.

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