MNI INSIGHT: Duration Of Brexit Uncertainty Key For BOE

-Bank Surveys Capture Business Uncertainty Over Likely Brexit Direction 

By David Robinson

     LONDON (MNI) - With the Brexit process entwined with UK political tumult,

the Bank of England is focussing on businesses' perceptions of how long

uncertainty will persist rather than on the different likelihoods of myriad

possible scenarios as it assesses the impact of events on its monetary policy,

MNI understands.

     A new question added to the Bank's rolling Decision Maker Panel business

survey last month showed that while 40% of business executives anticipated

Brexit uncertainty would be resolved by the end of this year, 30% thought it

would go into 2020 and 20% into 2021 or beyond, minutes of the Monetary Policy

Committee meeting ending March 20 showed.

     Bank officials believe uncertainty over the U.K.'s relationship with the

EU, and over the future make-up of the government, together with the likelihood

of elections, drove business investment to contract in every quarter of 2018.

     It is now possible that some aspects of Brexit will be clarified by the May

quarterly forecasting round, and that the UK will have secured a transition

period, but, while MPC members will have to take a shot at estimating the extent

of any investment rebound, the nature of the eventual trading relationship with

the EU is likely to be as unclear as ever.

     Some on the MPC doubt a significant recovery in investment will come any

time soon, as the Brexit process still has a long way to run, with Committee

newcomer Jonathan Haskel saying in a March 11 speech that businesses' spending

for the future could remain low for years.

     "For business, the question of whether that is a customs union or

free-trade area is vital since that gives more of a steer as to whether there

will be relatively frictionless trade with the EU or not," Haskel said.

     One lesson of the June 2016 referendum decision to leave the EU was that

businesses are likely to carry on relatively normally despite uncertainty until

cliff-edges near, with the main effect on investment manifesting as the deadline

for departure from the bloc drew closer. GDP tends to suffer more if

macroeconomic uncertainty is compounded by political uncertainty, research by,

among others, Bank economist Chris Redl has showed.

     The DMP survey showed Brexit uncertainty becoming the main source of

uncertainty for businesses, with concerns over supply side factors including the

future of customs and supply chains the key.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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