- The UK’s economic growth is forecast to be less than half global average this year.
- Bank of England Governor blames “short-term” Brexit effect, which is deterring businesses from investing.
- Carney says there is scope for a “conscious recoupling” of the UK to global growth rates once we get more clarity on Britain’s future trading relationship with Europe.
LONDON – Bank of England Governor Mark Carney referenced Hollywood star Gwyneth Paltrow on Friday when talking about the potential for the UK’s economy to catch up to global growth levels.
Earlier this week the International Monetary Fund (IMF) upgraded global growth forecasts to 3.9% this year, while at the same time cutting the UK’s economic growth prospects to just 1.5%.
Speaking from Davos, Carney told BBC Radio 4’s Today programme: “The global economy has really accelerated over the course of the last year we think it’s going to pick up again this year… The UK is a bit of an outlier in that [the IMF] don’t see it picking up. I think we at the Bank of England see some potential for a bit of a pickup.”
The Governor blamed the poor performance on a “short term” Brexit effect, which was putting businesses off investing, and said that greater clarity on Britain’s future trading relationships could help the UK catch up to average growth rates.
Carney said: “There’s the prospect this year, as there’s greater clarity about the future relationship with Europe, and subsequently, the rest of the world, for a recoupling if I can use that term, borrowed from Gwyneth Paltrow – a conscious recoupling of the UK economy with the global economy.”
Paltrow famously described her split from Coldplay singer Chris Martin as a “conscious uncoupling,” a term that was widely mocked at the time.
‘Investment in advanced economies is double digit and in the UK it’s low single digits’
Carney said the UK’s current growth deficit is a “short-term” Brexit effect.
“What’s happening in the UK is effectively the Brexit effect, in the short term, and I would underscore in the short-term, businesses in the UK – whether they’re in agriculture, whether they’re in financial services, car manufacturing – are waiting to see what kind of relationship we will have with Europe and what kind of relationship we’ll have with the rest of the world,” Carney said.
“What’s really going on in the economy now is that, not surprisingly, is that even though businesses have very strong balance sheets, even though credit is freely available, even though we’re at virtually full employment, investment has picked up a bit but it hasn’t picked up to the same way it has internationally. Investment in advanced economies is double digit and in the UK it’s low single digits.”
Greater clarity on future trading relationships should boost growth, Carney said.
“The deeper the relationship with Europe, the deeper the relationship with the world – and the two are obviously connected, it’s a complicated set of negotiations – the better it will be for the UK economy.”
Carney also defended the Bank of England’s record on Brexit forecasting. The central bank has been criticised as part of Project Fear, the term Brexit supporters use to label those who predicted economic collapse if Britain voted to leave.
The Governor said: “We said prior to the referendum that if there was a vote in favour of leaving that the pound would go down sharply – it did – that the economy would begin to slow – it has – and we expected inflation to rise.
“We’re in a position today where the economy is about a percentage point less in size than we expected just before the vote, by the end of the year probably two percentage points.
“What it works out to is tens of billions of pounds lower economic activity. The question is how do we make that up over time by growing above potentially.”
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