London - Bank of England Deputy Governor Ben Broadbent said the effect of uncertainty on business investment from the UK’s decision to leave the European Union may be more subtle than some observers have suggested.
Speaking in London, Broadbent said that the lack of clarity around Brexit could see companies delay major spending decisions as they choose to keep their options open.
His comments come amid speculation that the BOE will raise its growth estimates when it announces its policy decision next month after the economy performed better than many forecast in the wake of the Brexit vote.
"A lack of clarity about the UK’s future trading relationships needn’t result in visible, headline-grabbing closures of productive capacity," Broadbent said. "The effect is likely to be more insidious: decisions to expand, that might otherwise have been taken, are delayed."
He conceded that the economy has proven more resilient than expected since the Monetary Policy Committee said in August that growth would slow to 0.8% next year.
He said this may be due to stronger underlying momentum in domestic demand and resilience in the housing market, as well as support from the rapid depreciation of the pound.
Nevertheless, Broadbent defended the central bank’s August decision to cut its outlook and boost stimulus, arguing that observers risk over interpreting “noisy” economic data.
The deputy governor also addressed the impact of central banks’ quantitative easing policies on pension funds, and said it’s wrong to simply blame monetary action for larger deficits.
The BOE cut interest rates for the first time in seven years in August and unveiled purchases of government and corporate bonds, which initially help push gilt yields to record lows.
"An independent easing in policy - that part of it unrelated to declines in the neutral interest rate - tends to push up all prices of all assets, risky as well as risk-free," he said.
"If the MPC and other monetary authorities hadn’t eased policy - if they had failed to accommodate the forces pushing down on the neutral real rate - the performance of the economy and equity markets, and the long-term prospects for pension funds, would probably have been worse."