Bank of England boss delivers gloomy appraisal of future growth in UK
Bank of England deputy governor Sir Dave Ramsden revealed he has a gloomier outlook on UK growth than his rate-setting colleagues yesterday as he warned Brexit was set to weigh on the economy for some time.
In a speech to the Inverness Chamber of Commerce, Sir Dave said even if a Brexit deal was reached, he believes growth would not rebound as strongly as the Bank previously forecast.
He believes business investment, which has slumped for a year now, will not recover as sharply as currently predicted by the Bank, with productivity also remaining low.
But in the event of a smooth transition, he said interest rates would need to rise to keep inflation on target.
Sir Dave said: "If we get a smooth Brexit with a transition deal, as assumed in the Monetary Policy Committee's (MPC) latest inflation report forecast, I expect growth to pick up, leading to excess demand and building domestic inflationary pressure, so that further monetary tightening is appropriate to maintain monetary stability.
"Relative to the best collective judgment expressed in the MPC's central forecast, I am, as I have set out in my talk, a little more pessimistic on GDP (gross domestic product) growth than my colleagues on the MPC."
The deputy governor added that a no-deal Brexit would have "large negative economic effects".
He said businesses would continue to hold back on spending until uncertainty clears, with no imminent sign of resolution adding to the pressure on growth.
"We're unlikely to achieve full certainty until the final outcome of negotiations is known and there is a risk more persistent uncertainty could push out the pick-up in investment and continue to drag on growth," he said.
Sir Dave warned he could not say how the MPC should respond to a no-deal Brexit as it would depend on the reaction of the pound and other factors.
"There are scenarios where the balance of those factors would mean looser monetary policy was appropriate, and other scenarios where it would be appropriate to tighten," he added.
"In other words, the response would not be automatic and could go either way - rates could go up or down as the situation demands."
The Bank recently increased forecasts for UK growth to 1.5% this year, up from the paltry 1.2% predicted in February, thanks largely to a more stable global economic outlook.
The Bank also increased its growth outlook to 1.6% in 2020 and 2.1% in 2021, up from 1.5% and 1.9%.