Mark Carney, the Governor of the Bank of England, has said that the UK economy should be “booming” yet Brexit is holding it back.
“Since the referendum, what we’re seeing is that business investment has picked up, but it hasn’t picked up to any of the extents that 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,” Carney informed ITV’s Peston on Sunday.
“It should really be booming, but it’s just growing.
“I think we know why that’s the case, because [businesses are] waiting to see the nature of the deal with the European Union.”
Carney continued: “It’s the most important investment destination and [businesses] need to know transition and end state, everybody knows this, the Government knows it and is working on it, UK businesses know it, and the Europeans know it.”
“Brexit is reinforcing something that started in 2008, and so we think productivity is going to pick up but not to the same degree as in the past, due to the effects of Brexit.”
When asked whether the economy would be affected by leaving the European Union without a trade deal, Carney stated: “In the short term, without question, if we have materially less access (to the EU’s single market) than we have now, this economy is going to need to reorient and during that period of time it will weigh on growth.”
Carney stated that the central Brexit scenario of the Bank was a smooth transition for the United Kingdom, leading to a relationship that was somewhere between a full membership of the single market and a “no-deal” Brexit where Britain trades under terms of the World Trade Organisation.
Carney added that in the event of a bad deal on Brexit and sluggish economic growth, the bank might not be able to reduce future interest rates, even though he said that such a possibility “is not the most likely, by any stretch of the imagination, but it is a possibility.“
Carney stated that the United Kingdom had been successful in generating jobs but not in increasing raising wages or productivity. He said that this was not something that the Bank could control.
”The crash caused a lot of problems for about five years.Then we went through a period where the economy is healing, people were finding work.
“But businesses weren’t investing like they used to – in part because there was a lot of uncertainty.”
The words of the Governor come days after the Monetary Policy Committee of the Bank increased interest rates from 0.25% to 0.50% – the first increase in interest rates in over a decade.