Political and economic uncertainty before and after Britain’s vote to leave the European Union has proved to be less of a drag on economic growth than might have been expected, Bank of England policymaker Kristin Forbes said on Wednesday. Forbes – who voted against restarting government bond purchases in August – said central banks should not use uncertainty as an excuse to avoid making decisions or for the BoE to change its approach to setting policy. But she said uncertainty was hard to measure, and may be currently having less of an effect on Britain’s economy.
“The strength of the UK economy during the period of heightened uncertainty before and after the referendum on EU membership suggests that uncertainty is dragging less on growth than has traditionally occurred,” she said.
One reason could be that some factors which typically fed into economists’ measures of uncertainty – such as negative media reports and an unusually wide range of growth forecasts – played less of a role than thought.
Another was that rises in uncertainty typically led to tighter credit conditions, with businesses and consumers finding it harder to borrow money. This had not happened in Britain after June’s referendum.
“Nonetheless, even though heightened uncertainty has recently appeared to have less effect on the UK economy than expected, that does not mean that it has had no effect, or will have no effect in the future,” she said.
Uncertainty could rise or fall quickly after Britain starts formal talks to leave the EU, and some of its effects on investment, wages and productivity would only be visible with long time delays, she added.
The BoE would also try to curb uncertainty, she said.”We will also do what we can to reduce uncertainty when possible – such as by focusing on our remit, clarifying that we have the tools to either tighten or loosen monetary policy as needed,” Forbes said.