Brexit poses biggest challenge for economy: BOE

Bloomberg

Bank of England Deputy Governor-designate Charlotte Hogg said Brexit poses the biggest challenge for the economy and warned of the potential for a sharp drop in consumer spending that could hurt growth.
BOE policy makers expect real incomes will be eroded this year as the slump in the pound boosts inflation above its 2 percent target. That’s a threat to consumption, one of the main pillars of the economy’s resilience since the European Union referendum in June.
“Households are beginning to face a squeeze on their incomes,” Hogg, who will replace Minouche Shafik as deputy governor for markets and banking, said in a questionnaire published alongside her appointment hearing in London on Tuesday. “The MPC’s current forecast assumes steadily slowing growth in consumption, facilitated by a continued fall in the savings rate. But I can envisage scenarios in which the reaction of consumption could be more sudden.”
Hogg, who previously worked at Experian Plc and ran a consumer credit business, said that experience has made her “very sensitive to how quickly information (right or wrong) can be shared and how quickly customers could take action as a result.”
Inflation Tolerance
In the longer term, uncertainties surrounding the U.K.’s exit from the EU pose upside and downside risks to both inflation and growth, she said. Given that Brexit is muddying the outlook, the prospects for business investment are “still unclear,” Hogg said.
“My tolerance for temporarily above-target inflation will depend on events,” she said. “However, I would have no tolerance for a less than credible path back to target — from either above or below the target.”
Hogg will become deputy governor for markets and banking on Wednesday as well as keeping her role as chief operating officer. That expanded remit, which includes voting on interest rates and representing the BOE overseas, gives her the widest powers of any of Governor Mark Carney’s deputies.
A section of the hearing at Parliament’s Treasury Committee was devoted to conflicts of interest as Hogg’s brother works as a director in Group Strategy at Barclays. Hogg said she had always declared potential issues within the bank and is in “compliance with all the codes of conduct.”
Hogg, who will sit on the BOE’s Prudential Regulation Committee, said she would discuss the matter further with Carney and the central bank’s governing body. Pressed by lawmaker Andrew Tyrie, she also said it’s a possibility that she would recuse herself from some discussions on Barclays.