The Bank of England said on Wednesday it had seen no clear signs yet of a sharp economic slowdown after last month's vote to leave the European Union, raising questions over how aggressively it will act to boost the economy when it meets next month.
The BoE's regional agents, who speak regularly with companies, said business uncertainty had risen markedly but most firms did not plan to cut hiring or investment.
"As yet, there was no clear evidence of a sharp general slowing in activity," the report said.
A Reuters poll on Wednesday showed economists saw an average 60 percent chance that the British economy will suffer a recession in the coming year and most expect the BoE will cut rates on Aug. 4.
With no hard data yet published on the impact of the Brexit vote on the economy, investors are taking their cue from any fresh signs of what might be going on.
Sterling jumped almost a cent against the U.S. dollar as the BoE report struck a less downbeat tone than other surveys which have shown falls in business and consumer confidence.
"This is the coal face and engine room of an economy, and it matters a lot to us what they do. I am not surprised to see sterling rally and rate cut expectations pushed back," said Neil Jones, London-based head of hedge fund FX sales at Japanese bank Mizuho.
Last week the British central bank surprised markets by keeping interest rates on hold, rather than cutting them to a record low. But it also said most of its policymakers expected to approve a stimulus package at their Aug. 4 meeting.
As well as a rate cut, this could also mean a resumption of bond purchases and other measures to boost bank lending.
On Friday the central bank's chief economist, Andy Haldane, said he was willing to use a "sledgehammer to crack a nut" in cushioning any slowdown. But another policymaker, Martin Weale, said the case for action in August had not yet been made.
The report also dented demand at an auction of 1.5 billion pounds ($1.97 billion) of 20-year government debt.
HIT STILL TO COME?
Wednesday's report leaves open the risk that the full impact of the Brexit vote is yet to be felt.
Earlier this month the BoE said it expected the economy to slow markedly as a result of the decision to leave the EU, and on Tuesday the International Monetary Fund cut its growth forecast for Britain next year to 1.3 percent from 2.2 percent.
Many firms told the BoE they were reviewing their strategy in light of the unexpected outcome of the vote and about a third expected to cut hiring or investment over the next 12 months.
"There were a few reports of planned foreign direct inward investment being postponed," the report said.
"A number of companies were considering alternative European locations for aspects of their business, and some contacts within large international firms expected their continental European operations to receive a greater share of future investment than their UK ones," it added.
The BoE has estimated Britain's economy was growing roughly in line with its long-run average before the June 23 EU vote. Data on Wednesday showed the unemployment rate dropped to its lowest since 2005, at 4.9 percent in the three months to May.
The BoE report contrasted with a survey of British households, published by financial data company Markit on Wednesday, which showed households at their gloomiest about the economic outlook in two-and-a-half years.
Figures on Monday from accountants Deloitte showed four out of five chief financial officers of large British companies planned to reduce investment in the year ahead, and were at their most pessimistic since the 2008 financial crisis. ($1 = 0.7596 pounds) (Additional reporting by William Schomberg and Jemima Kelly; Editing by Mark Trevelyan and Giles Elgood)