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UPDATE 1-Bank of England's Ramsden sees slower growth than BoE forecast

David Milliken

(Adds detail from speech, context)

LONDON, May 30 (Reuters) - Britain's economy is likely to grow less than the Bank of England forecast earlier this month as Brexit uncertainty hurts investment and productivity, Deputy Governor Dave Ramsden said on Thursday.

Ramsden, who voted against the BoE's first post-crisis interest rate increase in November 2017, said rates would need to rise if Brexit went smoothly, but a disruptive Brexit would make the right path for monetary policy an open question.

Even if Brexit does go smoothly, it would be unlikely to dispel all business uncertainty, he said, so investment might pick up less than the BoE had forecast, hurting short-run growth and the economy's longer-run productive capacity.

"Relative to the best collective judgement expressed in the MPC's central forecast I am ... a little more pessimistic on GDP growth than my colleagues on the MPC," he told businesses during a visit to Inverness in northeastern Scotland.

The BoE forecast this month that the economy would grow by 1.5% this year and 1.6% in 2020 if Brexit goes smoothly.

Ramsden said his outlook for inflation and how fast to raise interest rates was similar to that of his colleagues, because weaker productivity growth was likely to push up on inflation, cancelling out the drag on inflation from slower growth.

Brexit uncertainty is leading businesses to use extra workers rather than invest in improving productivity, he said, something that was likely to weigh on productivity over the coming years.

"We are unlikely to achieve full certainty until the final outcome of (Brexit) negotiations is known, and there is a risk that more persistent uncertainty could push out the pick-up in investment and continue to drag on growth," he said.

Figures earlier on Thursday showed the biggest annual fall in car production since the financial crisis, after carmakers temporarily halted work last month because they were unable to reverse closures planned before the scheduled March 29 Brexit.

At the start of this month, BoE Governor Mark Carney said investors were underestimating how much interest rates could rise, even as the British central bank kept borrowing costs on hold due to Brexit uncertainty.

At the time, markets only priced in one quarter-point rate rise over the next three years, and short-term interest rate expectations have fallen back since and markets now think a rate cut is more likely than an increase over the coming year.

Ramsden, a former chief economist at Britain's finance ministry, said a no-deal Brexit with no transition period beforehand would have "large negative economic effects".

But that would not automatically mean interest rates should be cut, he said, because of the inflationary impact of a weaker pound and a further reduction in productivity.

(Reporting by David Milliken; editing by Paul Sandle, Larry King)