New Bank of England rate-setter warns of post-Brexit economic ‘lull’
Jonathan Haskel made the comments during an appointment hearing in front of MPs.
The Bank of England’s newly appointed rate-setter has warned that the UK economy is at risk of a “temporary lull” after Brexit, echoing his predecessor’s concerns over its effect on productivity and employment.
Jonathan Haskel told MPs during a Treasury Select Committee hearing that the UK may be at a disadvantage depending on the outcome of Brexit negotiations with the EU.
“What all of this hangs on is the extent to which we can renegotiate advantageous supply chain relationships, trade in services and all of those kinds of things – if they can be negotiated and we can be in a good place then the economy can keep on growing.
“If we’re in a bad place, then I think most people would agree that there may at least be a temporary lull in the economy,” he said.
Mr Haskel was fielding questions following his appointment to the Bank’s Monetary Policy Committee (MPC), where he will replace Ian McCafferty on September 1.
Mr McCafferty also raised concerns over Brexit’s economic effects in his last scheduled speech as a member of the MPC, noting the outlook for both productivity and the labour market remain “highly uncertain”.
“Both are likely to be heavily influenced by the outcome of the Brexit negotiations,” he explained.
However, Mr McCafferty – one of the most hawkish members of the MPC – did not see this as a reason to hold back on a rate hike, urging the Bank to pick up its heels and push through an increase sooner rather than later.
He said recent economic “softness” particularly in retail and construction can be attributed to extreme weather in early spring, while the economy is starting to “evolve broadly in line” with the Bank of England’s May forecasts.
“In my view, that outlook not only points to the need for a modest tightening of policy over the course of the next three years … That outlook, combined with the risks around it, also suggests that we should not dally in making the next move,” he said.
Mr McCafferty was one of the three MPC members who voted to raise rates above 0.5% last week, but he was ultimately outnumbered by the six other members who voted for the status quo.
His replacement, Mr Haskel, gave little indication that he would follow in Mr McCafferty’s hawkish footsteps, instead signalling that he may fall among the so-called doves who have taken a more cautious approach to returning interest rates to normal levels.
When asked to explain how he expects interest rates to change over the next three years, Mr Haskel – an economics professor – said it was “premature” to express his view.
“At this stage, I would merely say that, given current conditions and current economic data, I agree with the broad direction of travel,” Mr Haskel said in a written questionnaire to MPs.
He also highlighted a response to a survey of UK economists where he said that interest rates were likely to stay low since wage pressure would be weak.
Mr Haskel added that the Bank may be limited in what it can do to boost productivity levels across the country.
While the MPC sets short-term interest rates with the hopes of encouraging firms to borrow funds to boost investment, Mr Haskel said investment has remained low in the wake of the financial crisis.
“The trouble with productivity is that there’s a lot of other things going on and that’s where the MPC may have have less levers.
“So, for example, if firms are increasingly investing in intangible assets – you know, software, design, computers and all of that – they are much less amenable to going to a bank and asking for some credit on the basis of these intangible assets.
“So there, the levers that the MPC have got of affecting bank rate, they may be a little less potent.”