Broadbent: No-deal Brexit won’t help investment in UK

Bloomberg

It is wrong to suggest that the UK should pursue a no deal Brexit merely to end uncertainty for businesses, according to Ben Broadbent, the Bank of England’s deputy governor for monetary policy.
In a speech in London, Broadbent said that surveys indicate that firms are most worried about the prospects of a no-deal, no-transition Brexit, and that pursuing such an option merely to end uncertainty wouldn’t lead to a pick up in investment.
Broadbent added that the impact on investment of uncertainty is likely to be more pronounced if firms continually believe a resolution is coming sooner that it’s actually likely to. He didn’t comment directly on interest rates.
“It would be wrong to conclude from this that the best thing for investment is to resolve this uncertainty as soon as you can, by any means necessary,” Broadbent said. “Deliberately choosing the outcome firms say they view most negatively is more likely to mean that capital projects that have so far been deferred are then simply canceled.”
Investment is “likely to perform better if firms don’t continually expect an early resolution in the meantime,” he said.
Business investment fell in every quarter last year, Broadbent said, and the underlying trend in the UK investment is still negative. He suggested that “a plausible explanation is that rising uncertainty has acted like an extra hurdle on the required rate of return for new capital projects, deterring expansion in productive capacity and encouraging firms to meet new demand with labour instead.”