Brexit, and the uncertainty surrounding the UK’s stance on international trade, will have an “insidious” effect on the economy, according to the deputy governor of the Bank of England.
Ben Broadbent said that companies would back on future investment, having an adverse effect on the economy.
It might not be as noticeable as businesses closing or moving employees away from the UK, but it will be just as important.
“The 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 said in a speech on Wednesday.
His comments come as Britain’s services sector, which accounts for more than 75% of the country’s GDP, continued its recovery from the initial shock of the Brexit vote in September, according to data released on Wednesday morning.
Every major constituent of UK economy has now staged a huge comeback following a massive drop in the immediate wake of Britain’s vote to leave the European Union, but, according to the Broadbent, any negative effects might take a while to show up.
“The additional uncertainty brought about by the referendum involves the UK’s trading relationships once it formally leaves the EU. That is likely to be some way off — two years after the relevant treaty article is triggered,” said Broadbent.
There is concern in the City of London rises over the possibility of a so-called hard Brexit, where the UK leaves the European Union without signing any special trade agreements with the remaining 27 member states in return for tougher controls on immigrants. That uncertainty has caused the pound to drop to fresh 31-year low against the dollar over the past three days.
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