Mark Carney – Brexit uncertainty could hit UK growth
Bank of England boss says bad deal could impact interest rates
The Governor of the Bank of England said uncertainty over Brexit and the UK’s future trade relations with the European Union are having a negative impact on growth.
Mark Carney, speaking in the week the Bank of England decided to raise interest rates 0.5% for the first time in a decade, said there were signs of optimism that UK business was doing well.
But he said concerns over future access to the single market – something which has yet to be thrashed out between the UK Government and EU leaders – had the potential to scupper growth.
Speaking as a guest on ITV’s Peston on Sunday, the Canadian economist said: “The crash (2008 banking crisis) caused a lot of problems for about five years, then we went through a period where the economy’s healing and people are finding work.
“But businesses aren’t investing like they used to, in part because there is more uncertainty in the world than in the UK.
“Since the referendum what we’ve seen is business investment has picked up but it hasn;t picked up to any of the extent given the extent one would have expected given how strong the world is, how easy financial conditions are, how high profitability is and how little spare capacity they have.
“It should really be booming and it is just growing.”
Growth edged up to a better-than-expected 0.4% in the third quarter from 0.3% in the previous three months, according to last week’s first official estimate.
This suggests the economy is stable and no longer in need of the emergency boost delivered by the Bank after last year’s Brexit vote.
And last month the Government was buoyed by figures showing that unemployment had fallen to a 12-year low, after the jobless total was cut by 52,000 in the quarter to August to 1.4 million, with women driving the growth in employment.
But some economists have voiced fears over the timing of a rate hike, amid uncertainty caused by Brexit negotiations and a shaky consumer outlook as household finances are squeezed by rising inflation and paltry wage growth.
Mr Carney said: “I think we know the reason why that (slow growth) is the case, and it’s because they are waiting to see the nature of the deal with the EU.
“It’s the most important investment destination. Everybody knows this – the Government knows it and is working on it, the Europeans know it, uk businesses know it.
“The Brexit uncertainty is reinforcing something that started in 2008. We actually think productivity is going to pick up over the next couple of years, but not to the same degree as in the past and it’s that Brexit effect.
“This uncertainty is going to be resolved in the relatively near future, UK businesses are in very good shape, the balance sheets are in good shape, the financial system is in excellent shape, people are in work and the opportunity is going to be – once that uncertainty dissipates – to put that money to work.”
He agreed a bad Brexit deal and low growth might mean the Bank is unable to cut interest rates.
Asked whether leaving the EU in 2019 without a trade deal would see growth rate fall, and full membership of single market and customs union would see a pick-up in the growth rate, the governor said: “The short answer is yes.”