MNI POLICY: BOE Broadbent: Brexit Hit Worse If End Seen Close

By David Robinson

     LONDON (MNI) - Bank of England Deputy Governor Ben Broadbent said that the

negative impact of the Brexit process on business investment would be worse if

business executives continued to take the view that the end was in sight.

     In a speech at Imperial College Business School Broadbent said that the

evidence showed businesses which were expecting uncertainty to evaporate in the

near future held off investing more than if uncertainty was expected to persist.

     Persistent speculation that there could be a resolution of Brexit soon only

amplifies the hit to business investment.

     The following are key points from the speech:

     -The Brexit deadline for a deal to be agreed between the UK and the EU,

allowing  a transition period, was originally set for end March but this has

been pushed to end October. Broadbent highlighted the negative effect of

shifting deadlines fuelling the belief that an end was in sight.

     "The point is simply that the impact on investment of a given period of

uncertainty is worse if, erroneously, firms keep believing that it will end

sooner than it's actually likely to," he said.

     -The BOE official firmly rejected, however, the view that a swift move to a

no deal, no transition Brexit would support investment, as this is what firms

have said they fear the most.

     "If investment has been postponed for fear of what firms see as a bad

outcome, guaranteeing precisely that outcome will probably make things worse.

It's likely to mean that projects delayed will instead be cancelled," he said.

     -UK business investment growth has been markedly weaker than in other

advanced economies since the June 2016 vote to leave the EU. Broadbent's

comments highlight why it has been hit so hard.

     "Business investment fell in every quarter last year and surveys suggest

the underlying trend is still negative. This is remarkable at a time when

profits are high, when the economy's not been in recession and when employment

has been growing strongly," he said.

     The economics states that the value of waiting to invest is higher the

sooner uncertainty is expected to be resolved, he said.

     "The firms most reluctant to invest have tended to be those that expect an

early resolution to the Brexit process," he said.

     -While the speech highlight how the UK's supply side has been by Brexit, he

made no direct comment about current monetary policy setting.

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

[TOPICS: M$B$$$,M$E$$$,M$$BE$]