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Financial News: UK's Supply Capacity Likely To Expand At Moderate

UK's Supply Capacity Likely To Expand At Moderate Rates, Says Carney

09/19/2017 - 04:09:00 (RTTNews)

(RTTNews) - The supply capacity of the UK economy is likely to expand at only modest rates in coming years, Bank of England Governor Mark Carney said Monday.

Brexit-related uncertainties have forced some companies to delay their investment decision, he said in a speech at the International Monetary Fund.

If the MPC's current forecast comes to pass, the level of investment in 2020 is expected to be 20 percent below the level which the bank had projected just before the referendum, Carney noted.

Carney reiterated that some withdrawal of monetary stimulus is likely to be appropriate over the coming months.

Carney repeated that any prospective increases in interest rate would be expected to be at a gradual pace and to a limited extent.

The governor observed considerable risks to the UK outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal.

He said any reduction in openness with the EU is unlikely to be immediately compensated by new ties of a similar magnitude with other trade partners.

Even if new agreements with other partners could be struck instantaneously, the reorientation of business relationships will take some time, he noted.

Carney criticized Brexit saying it is an example of de-globalisation not globalisation. "Its effects will not build by stealth but can be anticipated," he said.

Further, he said over a shorter horizon abrupt decreases in migration could result in shortages in some sectors that have become reliant on migrant labor, and contribute more materially to inflationary pressures.

"It is critical to recognize that Brexit represents a real shock about which monetary policy can do little."

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