UK economy managing to ride through Brexit uncertainty – BoE Forbes

Posted on November 23, 2016

The British economy has shown unexpected resilience in the wake of the uncertainty generated by the Brexit vote, one of the Bank of England’s policymakers has said, as growth has proven “solid” despite the referendum jitters.

Kristin Forbes, who earlier this year emerged as a more hawkish member of the BoE’s monetary policy committee, questioned whether the notion of “uncertainty” imposed as much of a drag on economic activity as economists have typically thought.

The UK’s relatively robust short-term performance since the Brexit vote showed that “uncertainty is dragging less on growth than has traditionally occurred”.

“Uncertainty is a concept that is easy to talk about, but hard to measure”, said Ms Forbes, a former US academic, in speech in London on Wednesday.

Part of the reason for a possible over-estimation of the expected hit to the economy came from “heightened media attention” over the outcome of the vote, she said, adding:

Adjusting uncertainty measures to reduce the importance of these less informative components suggests a smaller drag on growth from the recent increase in uncertainty.

Ms Forbes also noted that borrowing conditions in the UK remained accommodative following June 23 – with policymakers reporting no discernible rise in the cost of credit for consumers.

Despite the resilience showed by the average UK consumer, the adverse effects of the decision to leave the EU are set to kick in over the medium term as businesses delay investment decisions over the next 12 months, she warned.

The UK economy grew by a relatively robust 0.5 per cent in the third quarter, with the Bank of England raising its 2017 growth forecasts but keeping its overall growth trajectory for the economy unchanged stretching out to 2019.

With the BoE deciding to cut interest rates to a record low in August and launch a new round of bond-purchases, Ms Forbes said:

We will also do what we can to reduce uncertainty when possible – such as by focusing on our remit, clarifying that we have the tools to either tighten or loosen monetary policy as needed, explaining how we make our decisions, and discussing the key variables that will be critical to these decisions. Uncertainty is just one of those variables.

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