The Brexit deal agreed between London and Brussels will boost growth and could be a turning point for the global economy, the governor of the Bank of England, Mark Carney, has said.
In an interview with Bloomberg TV in Washington Carney said: “It is good news that there is an agreement. I would expect the economy to pick up from quite a subdued pace.”
He added that the UK was one of the most flexible economies in the world and would cope with life outside the EU: “Household and corporate balance sheets are in good shape. With a transition this economy will adjust.”
The governor said the referendum had been the start of a period of trade uncertainty that had caused the global economy to slow. “The UK may have led the world into this and we may be leading the world out,” he said.
Carney said that since the referendum in June 2016 the Bank had been making the case for a transition to a new trading relationship between the UK and the EU. “This is the deepest, most integrated economic relationship in the world between countries. There is going to be a substantial change to the level of integration,” he said. “Transition is better than jumping.”
He added that the Bank had spent the past three years ensuring that financial institutions could cope in the event that the UK left without a deal. “The financial system is ready for any potential outcome,” the governor said.
The Bank believes that businesses have been reluctant to commit to new capital projects due to a lack of clarity about Britain’s future relationship with the EU. “The level of business investment is 25% below where it would otherwise have been. With a deal I would expect a rebound even though it won’t all come back,” said Carney.
The governor also added that a bounce in the economy would make “monetary policy more interesting”, suggesting the Bank’s monetary policy committee would have to weigh whether to raise interest rates.
Financial markets have been betting on the Bank following the lead of the US Federal Reserve and the European Central Bank, which have responded to flagging growth by cutting interest rates. Official UK borrowing costs are currently pegged at 0.75%, with members of the monetary policy committee voting 9-0 at its last meeting to keep them unchanged.